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

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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.

ekkarill92 answered 2 years ago

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