Applying the lower-of-cost-or-market rule
Refer to Short Exercises. At August 31, the accountant for Mountain Cycles determines that the current replacement cost of each bike is $40.
Requirements
1. Assuming inventory was calculated using the FIFO method, make any adjusting entry needed to apply the lower-of-cost-or-market rule. Inventory would be reported on the balance sheet at what value on August 31?
2. Assuming inventory was calculated using the LIFO method, make any adjusting entry needed to apply the lower-of-cost-or-market rule. Inventory would be reported on the balance sheet at what value on August 31?
3. Assuming inventory was calculated using the average-cost method, make any adjusting entry needed to apply the lower-of-cost-or-market rule. Inventory would be reported on the balance sheet at what value on August 31?
Exercises
Perpetual inventory record—FIFO
Mountain Cycles uses the FIFO inventory method. Mountain started August with 12 bicycles that cost $42 each. On August 16, Mountain bought 40 bicycles at $68 each. On August 31, Mountain sold 36 bicycles.
Requirement
1. Prepare Mountain’s perpetual inventory record.
Requirement
1. Prepare a perpetual inventory record for the LIFO method.
Journalizing inventory transactions—FIFO
Use the Mountain Cycles data in Short Exercise.
Exercise
Perpetual inventory record—FIFO
Mountain Cycles uses the FIFO inventory method. Mountain started August with 12 bicycles that cost $42 each. On August 16, Mountain bought 40 bicycles at $68 each. On August 31, Mountain sold 36 bicycles.
Requirement
1. Prepare Mountain’s perpetual inventory record.
Requirements
1. Journalize the August 16 purchase of inventory on account.
2. Journalize the August 31 sale of inventory on account. Mountain sold each bicycle for $84.
3. Journalize the Cost of goods sold under FIFO on August 31.
Journalizing inventory transactions—LIFO
Use the Mountain Cycles data in Short Exercise.
Exercise
Perpetual inventory record—LIFO
Review the facts on Mountain Cycles in Short Exercise.
Exercise
Perpetual inventory record—FIFO
Mountain Cycles uses the FIFO inventory method. Mountain started August with 12 bicycles that cost $42 each. On August 16, Mountain bought 40 bicycles at $68 each. On August 31, Mountain sold 36 bicycles.
Requirement
1. Prepare Mountain’s perpetual inventory record.
Requirement
1. Prepare a perpetual inventory record for the LIFO method.
Requirements
1. Journalize the August 16 purchase of inventory on account.
2. Journalize the August 31 sale of inventory on account. Mountain sold each bicycle for $84.
3. Journalize the Cost of goods sold under LIFO on August 31.
Journalizing inventory transactions—average cost
Use the Mountain Cycles data in Short Exercise.
Exercise
Perpetual inventory record—average cost
Review the facts on Mountain Cycles in Short Exercise.
Exercise
Perpetual inventory record—FIFO
Mountain Cycles uses the FIFO inventory method. Mountain started August with 12 bicycles that cost $42 each. On August 16, Mountain bought 40 bicycles at $68 each. On August 31, Mountain sold 36 bicycles.
Requirement
1. Prepare Mountain’s perpetual inventory record.
Requirement
1. Prepare a perpetual inventory record for the average-cost method.
Requirements
1. Journalize the August 16 purchase of inventory on account.
2. Journalize the August 31 sale of inventory on account. Mountain sold each bicycle for $84.
3. Journalize the Cost of goods sold under average cost on August 31.
Requirements
1. Which method of inventory accounting produced the lowest cost of goods sold?
2. Which method of inventory accounting produced the highest cost of goods sold?
3. If prices had been declining instead of rising, which inventory method would have produced the highest cost of goods sold?
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