Question

2. Keira’s Kites has the following information pertaining to her Kite Inventory:

KITE               Cost                ReplaceCost                  NRV             NRV- Profit

A                      $20,000          $20,500                      $21,000          $16,000

B                      $50,000          $51,000                      $49,500          $41,000

C                      $44,000          $45,500                      $46,250          $37,000

D                     $32,000          $29,900                      $38,300          $30,700

Required:

1. Calculate the Lower of Cost or Market Value for each item of inventory and RECORD any adjusting Journal Entry required.
2. Calculate the Lower of Cost or Market for the Total Inventory and record any adjusting entry required.

**NRV=Net Realizable Value****

***NRV-Profit = Net Realizable Value – Normal Profit Margin***

Answer 1

Requirement:A

KITE	Cost	replacement cost	Net realizable value(ceiling)	Net realizable value less normal profit margin(floor)	Market price	final inventory value[Lower of cost or market value
A	$        20,000	$                       20,500	$              21,000	$                        16,000	$       20,500	$                            20,000
B	$        50,000	$                       51,000	$              49,500	$                        41,000	$       49,500	$                            49,500
C	$        44,000	$                       45,500	$              46,250	$                        37,000	$       45,500	$                            44,000
D	$        32,000	$                       29,900	$              38,300	$                        30,700	$       30,700	$                            30,700

Entries:

Date	General Journal	Debit	Credit
Dec. 31	Cost of Goods Sold [50000-49500]	$        500
	Merchandise Inventory-B		$        500
	[To record LCM Adjustment ]
Date	General Journal	Debit	Credit
Dec. 31	Cost of Goods Sold [32000-30700]	$    1,300
	Merchandise Inventory-D		$    1,300
	[To record LCM Adjustment ]

Requirement:B

KITE	Cost	replacement cost	Net realizable value(ceiling)	Net realizable value less normal profit margin(floor)	Market price	final inventory value[Lower of cost or market value
A	$        20,000	$                       20,500	$              21,000	$                        16,000	$       20,500	$                            20,000
B	$        50,000	$                       51,000	$              49,500	$                        41,000	$       49,500	$                            49,500
C	$        44,000	$                       45,500	$              46,250	$                        37,000	$       45,500	$                            44,000
D	$        32,000	$                       29,900	$              38,300	$                        30,700	$       30,700	$                            30,700
Total	$     146,000					$                         144,200

Entries:

Date	General Journal	Debit	Credit
Dec. 31	Cost of Goods Sold [146000-144200]	$    1,800
	Merchandise Inventory		$    1,800
	[To record LCM Adjustment ]