Reporting Inventory at Lower of Cost or Market
Parson Company was formed on January 1, 2012, and is preparing the annual financial statements dated December 31, 2012. Ending inventory information about the four major items stocked for regular sale follows:
ENDING INVENTORY, 2012 | |||
Item | Quantity on Hand | Unit Cost When Acquired (FIFO) | Replacement Cost (Market) at Year-End |
A | 20 | $10 | $15 |
B | 55 | 40 | 44 |
C | 35 | 57 | 55 |
D | 10 | 27 | 32 |
Required:
1. Compute the valuation that should be used for the 2012 ending inventory using the LCM rule applied on an item-by-item basis. (Hint: Set up columns for Item, Quantity, Total Cost, Total Market, and LCM Valuation. )
2. What will be the effect of the write-down of inventory to lower of cost or market on cost of goods sold for the year ended December 31, 2012?
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