Question
In: Accounting
Solomon Thomas Inc. (STI) sells three products: football helmets, football pads, and football cleats. STI is...
Solomon Thomas Inc. (STI) sells three products: football helmets, football pads, and football cleats. STI is using the FIFO cost flow assumption. After taking their physical inventory on December 31, 2017, the following information is obtained: Football Helmets – cost $45,000, market value $47,000; Football Pads – cost $59,000, market value $55,000; Football Cleats – cost $19,000, market value $18,000. STI is deciding whether to apply the lower-of-cost-or- market (LCM) on an individual item basis or to the total inventory. The difference between the two methods of application would result in
Solutions
Expert Solution
- All working forms part of the answer
- IF Lower of Cost or Market is applied on Individual Item basis
|
Cost |
Market Value |
Lower of Cost or Market Value |
|
|
Football Helmets |
$ 45,000.00 |
$ 47,000.00 |
$ 45,000.00 |
|
Football Pads |
$ 59,000.00 |
$ 55,000.00 |
$ 55,000.00 |
|
Football Cleats |
$ 19,000.00 |
$ 18,000.00 |
$ 18,000.00 |
Ending Inventory =45000 + 55000 + 18000 = $ 118,000
- IF Lower of Cost or Market is applied on TOTAL Inventory
|
Cost |
Market Value |
|
|
Football Helmets |
$ 45,000.00 |
$ 47,000.00 |
|
Football Pads |
$ 59,000.00 |
$ 55,000.00 |
|
Football Cleats |
$ 19,000.00 |
$ 18,000.00 |
|
Total |
$ 123,000.00 |
$ 120,000.00 |
Ending Inventory = $ 120,000 [Minimum of $ 123,000 cost or $ 120,000 Market]
- Difference between the two application = 120000 – 118000 = $ 2,000 of inventory value.
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