Question

A physical inventory of Liverpool Company taken at December 31 reveals the following.   
  

		Per Unit
Item	Units	Cost			Market
Car audio equipment
Speakers	347	$	102		$	110
Stereos	262		123			113
Amplifiers	328		98			107
Subwoofers	206		64			54
Security equipment
Alarms	482		162			152
Locks	293		105			95
Cameras	214		324			334
Binocular equipment
Tripods	187		86			96
Stabilizers	172		107			117

Required:
1. Calculate the lower of cost or market for the inventory applied separately to each item.
2. If the market amount is less than the recorded cost of the inventory, then record the LCM adjustment to the Merchandise Inventory account.
  

Answer 1

Total Cost = Quantity * Cost per unit

Market Value = Quantity * Market per unit

Total Inventory = Lower of (Total Cost or Market Value)

Amount of loss = Total Cost - Total Inventory

Item	Units	Cost Per Unit	Market Per Unit	Total Cost	Market Value	Inventory Value (LCM rule)
Car audio equipment
Speakers	347	$        102	$        110	$   35,394	$    38,170	$              35,394
Stereos	262	$        123	$        113	$   32,226	$    29,606	$              29,606
Amplifiers	328	$          98	$        107	$   32,144	$    35,096	$              32,144
Subwoofers	206	$          64	$          54	$   13,184	$    11,124	$              11,124
Security equipment
Alarms	482	$        162	$        152	$   78,084	$    73,264	$              73,264
Locks	293	$        105	$          95	$   30,765	$    27,835	$              27,835
Cameras	214	$        324	$        334	$   69,336	$    71,476	$              69,336
Binocular equipment
Tripods	187	$          86	$          96	$   16,082	$    17,952	$              16,082
Stabilizers	172	$        107	$        117	$   18,404	$    20,124	$              18,404
Total				$ 325,619		$            313,189

Total Cost		$ 325,619
Less: Total Inventory		$ 313,189
Inventory write off		$   12,430
General Journal	Debit	Credit
Cost of Good sold	$       12,430
Merchandise Inventory		$   12,430
(To record write off inventory.)