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Cullumber Co. follows the practice of valuing its inventory at the lower-of-cost-or-market. The following information is...
Cullumber Co. follows the practice of valuing its inventory at the lower-of-cost-or-market. The following information is available from the company’s inventory records as of December 31, 2017. Item Quantity Unit Cost Replacement Cost/Unit Estimated Selling Price/Unit Completion & Disposal Cost/Unit Normal Profit Margin/Unit A 1,600 $ 8.33 $ 9.32 $ 11.66 $ 1.67 $ 2.00 B 1,300 9.10 8.77 10.43 1.00 1.33 C 1,500 6.22 5.99 7.99 1.28 0.67 D 1,500 4.22 4.66 6.99 0.89 1.67 E 1,900 7.10 6.99 7.44 0.78 1.11 Greg Forda is an accounting clerk in the accounting department of Cullumber Co., and he cannot understand why the market value keeps changing from replacement cost to net realizable value to something that he cannot even figure out. Greg is very confused, and he is the one who records inventory purchases and calculates ending inventory. You are the manager of the department and an accountant. Calculate the lower-of-cost-or-market using the individual-item approach. Lower-of-Cost-or-Market (Per unit basis) Item A $ Item B $ Item C $ Item D $ Item E $
|
Account Titles and Explanation |
Debit |
Credit |
| Cost of Goods sold Method: | ||
| The Loss method: |
Solutions
Expert Solution
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| a | For which we need to calculate two more columns: NRV (Net Realizable Value) and (NRV – Normal Profit Margin) | |||||||||||
| Item | Quantity | Unit Cost | Replacement Cost / unit | Estimated Selling price / unit | Completion & Disposal cost / unit | Normal Profit Margin | NRV | NRV-MARGIN | Market | Lower Of Cost or Market | ||
| A | 1,600 | $8.33 | $9.32 | $11.66 | $1.67 | $2.00 | $9.99 | $7.99 | $9.32 | $8.33 | ||
| B | 1,300 | $9.10 | $8.77 | $10.43 | $1.00 | $1.33 | $9.43 | $8.10 | $8.77 | $8.77 | ||
| C | 1,500 | $6.22 | $5.99 | $7.99 | $1.28 | $0.67 | $6.71 | $6.04 | $5.99 | $5.77 | ||
| D | 1,500 | $4.22 | $4.66 | $6.99 | $0.89 | $1.67 | $6.10 | $4.43 | $4.66 | $4.22 | ||
| E | 1,900 | $7.10 | $6.99 | $7.44 | $0.78 | $1.11 | $6.66 | $5.55 | $6.99 | $6.99 | ||
| Where Market is calculated by comparing Replacement Cost / unit, NRV and NRV – Profit Margin. The value which is between the other two is taken as the market. | ||||||||||||
| For the Lower cost or market, the value is the lowest between market and the unit cost. | ||||||||||||
| b | Journal Entry in order to write down the inventory loss. | |||||||||||
| The total loss is (1300*(9.10-8.77)) + (1500*(6.22-5.99)) + (1900*(7.10-6.99)) = $983 | ||||||||||||
| Debit | Credit | |||||||||||
| Loss on LCM Adjustment | $983 | |||||||||||
| Finished Goods Inventory | $983 | |||||||||||
ekkarill92 answered 2 years agoRelated Solutions
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Item
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A
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Normal Profit
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1,600
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Normal Profit
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Item
Quantity
Cost per Unit (RM)
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Calculate the LCNRV using the “individual-item” approach....
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E9.7 (LO 2)
(Lower-of-Cost-or-Market) Wangerin Company follows
the practice of pricing its inventory at the
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Quantity
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1320
1,200
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$3.00
$4.50
$0.35
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1333
900
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2.30
3.50
0.50
0.50
1426
800
4.50
3.70
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0.40
1.00
1437
1,000
3.60
3.10
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500
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