Answer:
Home Stop
1. The carrying value of inventory at year-end, assuming the lower of cost or market (LCM) rule is applied to:
(a) individual products = $16,570
(b) product categories = $17,430
(c) total inventory = $17,430
2. Adjusting Journal Entries:
a) by individual products:
Debit Cost of goods sold $2,160
Credit Inventory $2,160
To record the inventory write-down.
b) by category:
Debit Cost of goods sold $1,300
Credit Inventory $1,300
To record the inventory write-down.
c) by total inventory:
Debit Cost of goods sold $1,300
Credit Inventory $1,300
To record the inventory write-down.
Explanation:
a) Data and Calculations:
Inventory,
by Product Category Quantity Per Unit Cost Market LCM
Furniture:
Chairs 50 $ 28 $ 34 $1,400 ($28 * 50)
Desks 80 76 61 $4,880 ($61 * 80)
Tables 70 87 95 $6,090 ($87 * 70)
Accessories:
Rugs 70 63 51 $3,570 ($51 * 70)
Lamps 30 25 21 $630 ($21 * 30)
Total value of inventory (by individual products) = $16,570
by Category:
Furniture:
at Cost (50 * $28 + 80 * $76 + 70 * $87) = $13,570
at Market value (50 * $34 + 80 * $61 + 70 * $95) = $13,230
Accessories:
at Cost (70 * $63 + 30 * $25) = $5,160
at Market value (70 * $51 + 30 * $21) = $4,200
Total inventory value = $17,430 ($13,230 + $4,200)
by total inventory:
Furniture: at Cost (50 * $28 + 80 * $76 + 70 * $87) = $13,570
Accessories: at Cost (70 * $63 + 30 * $25) = $5,160
Total = $18,730 ($13,570 + $5,160)
Furniture: at Market value (50 * $34 + 80 * $61 + 70 * $95) = $13,230
Accessories: at Market value (70 * $51 + 30 * $21) = $4,200
Total inventory value = $17,430 ($13,230 + $4,200)
Market value is chosen as the total is less than the total cost.
The cost of inventory = $18,730
LCM by individual products = 16,570
Write-down = $2,160
The cost of inventory = $18,730
LCM by category = $17,430
Write-down = $1,300
The cost of inventory = $18,730
LCM by total inventory = 17,430
Write-down = $1,300
