Question

Problem 9-5 Waterway Co. follows the practice of valuing its inventory at the lower-of-cost-or-market. The following information is available from the company’s inventory records as of December 31, 2017. Item Quantity Unit Cost Replacement Cost/Unit Estimated Selling Price/Unit Completion & Disposal Cost/Unit Normal Profit Margin/Unit A 1,300 $8.78 $9.83 $12.29 $1.76 $2.11 B 1,000 9.59 9.24 11.00 1.05 1.40 C 1,200 6.55 6.32 8.42 1.35 0.70 D 1,200 4.45 4.91 7.37 0.94 1.76 E 1,600 7.49 7.37 7.84 0.82 1.17 Greg Forda is an accounting clerk in the accounting department of Waterway Co., and he cannot understand why the market value keeps changing from replacement cost to net realizable value to something that he cannot even figure out. Greg is very confused, and he is the one who records inventory purchases and calculates ending inventory. You are the manager of the department and an accountant.

Calculate the lower-of-cost-or-market using the individual-item approach. Lower-of-Cost-or-Market (Per unit basis) Item A $ Item B $ Item C $ Item D $ Item E $

Show the journal entry he will need to make in order to write down the ending inventory from cost to market. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
Cost of Goods sold Method:
The Loss method:

Answer 1

Answer 1

	Lower-of-Cost-or-Market
A	$         11,414
B	$           9,240
C	$           7,644
D	$           5,340
E	$         11,232

Answer 2 Journal Entries

Date	Accounts Titles and Explanation			Debit	Credit
Cost of Goods Sold Method
	Cost of Good sold			$1,318
	Inventory				$1,318
The loss Method
	Inventory Write down or loss			$1,318
	Inventory				$1,318

Detailed workings

Calculation of NRV
Item No.	Estimated Selling Price	Cost of Completion and Disposal	NRV= Selling Price-Cost of Completion
A	$12.29	$1.76	$10.53
B	$11.00	$1.05	$9.95
C	$8.42	$1.35	$7.07
D	$7.37	$0.94	$6.43
E	$7.84	$0.82	$7.02
Calculation of Lower limit or floor
Item No.	NRV= Selling Price-Cost of Completion	Normal Profit	Lower limit
A	$10.53	$2.11	$8.42
B	$9.95	$1.40	$8.55
C	$7.07	$0.70	$6.37
D	$6.43	$1.76	$4.67
E	$7.02	$1.17	$5.85
		Upper limit	Lower Limit
Item No.	Cost to Replace	NRV	Lower limit	Market Value = Middle of three R.cost, NRV, NRv-Profit	Cost per Unit	Valuation Lower of Cost or Market Value
A	$9.83	$10.53	$8.42	$9.83	$8.78	$             8.78
B	$9.24	$9.95	$8.55	$9.24	$9.59	$             9.24
C	$6.32	$7.07	$6.37	$6.37	$6.55	$             6.37
D	$4.91	$6.43	$4.67	$4.91	$4.45	$             4.45
E	$7.37	$7.02	$5.85	$7.02	$7.49	$             7.02
Value of Inventory
Item No.	Quantity	Value per unit	Value = quantity x per unit
A	1,300	$               8.78	$                                            11,414
B	1,000	$               9.24	$                                              9,240
C	1,200	$               6.37	$                                              7,644
D	1,200	$               4.45	$                                              5,340
E	1,600	$               7.02	$                                            11,232
			$                                            44,870
Total Cost Calculation
Item No.	Quantity	Value per unit	Total Cost
A	1,300	$8.78	$11,414.00
B	1,000	$9.59	$9,590.00
C	1,200	$6.55	$7,860.00
D	1,200	$4.45	$5,340.00
E	1,600	$7.49	$11,984.00
Total Cost			$46,188.00
	Lower of Cost or Market
A	$         11,414
B	$           9,240
C	$           7,644
D	$           5,340
E	$         11,232
		Cost	-	Value (LCNRV)	=	Loss
Loss on Valuation		$46,188	-	$44,870	=	$1,318