Question

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

		Per Unit
Item	Units	Cost			Market
Car audio equipment
Speakers	352	$	107		$	115
Stereos	267		128			118
Amplifiers	333		103			112
Subwoofers	211		69			59
Security equipment
Alarms	487		167			157
Locks	298		110			100
Cameras	219		329			339
Binocular equipment
Tripods	192		91			101
Stabilizers	177		112			122

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

1
		Per unit		Total		LCM applied to
	Units	Cost	Market	Cost	Market	Entire inventory	Individual items
Car audio equipment
Speakers	352	107	115	37664	40480		37664
Stereos	267	128	118	34176	31506		31506
Amplifiers	333	103	112	34299	37296		34299
Subwoofers	211	69	59	14559	12449		12449
Security equipment
Alarms	487	167	157	81329	76459		76459
Locks	298	110	100	32780	29800		29800
Cameras	219	329	339	72051	74241		72051
Binocular equipment
Tripods	192	91	101	17472	19392		17472
Stabilizers	177	112	122	19824	21594		19824
Total				344154	343217	343217	331524
2
	Debit	Credit
Cost of goods sold	12630		=344154-331524
Merchandise Inventory		12630