Inventory valuation based on the lower-of-cost-or-market rule
At the end of the year, Ralph’s Repair Service had the following items in inventory:
Item | Quantity | Unit Cost | Unit Market Value |
P1 | 80 | $ 80 | $ 90 |
P2 | 60 | 60 | 66 |
P3 | 100 | 140 | 130 |
P4 | 50 | 130 | 140 |
Required
a. Determine the amount of ending inventory using the lower-of-cost-or-market rule applied to each individual inventory item.
b. Provide the general journal entry necessary to write down the inventory based on Requirement a. Assume that Ralph’s Repair Service uses the perpetual inventory system.
c. Determine the amount of ending inventory, assuming that the lower-of-cost-or-market rule is applied to the total inventory in aggregate.
d. Provide the general journal entry necessary to write down the inventory based on Requirement c. Assume that Ralph’s Repair Service uses the perpetual inventory system.
e. Explain how the inventory loss would be reported when the periodic inventory system is used.
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