Question

At 12/31/20, the end of Wildhorse Company's first year of business, inventory was $6,500 and $5,100 at cost and at market, respectively. Following is data relative to the 12/31/21 inventory of Jenner: Item Original Cost Per Unit Replacement Cost A $0.85 $0.35 B 0.40 0.35 C 0.65 0.70 D 0.80 0.70 E 0.70 0.65 Selling price is $1.00/unit for all items. Disposal costs amount to 10% of selling price and a "normal" profit is 30% of selling price. There are 1,500 units of each item in the 12/31/21 inventory. Prepare the entry at 12/31/20 necessary to implement the lower-of-cost-or-market procedure assuming Wildhorse uses a contra account for its balance sheet. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit 12/31/20     Loss Due to Decline of Inventory to Market    Recovery Due to Market Incline of Inventory    Profit Due to Market Decline of Inventory    Allowance to Reduce Inventory to Market    Cost of Goods Sold         Profit Due to Market Decline of Inventory    Cost of Goods Sold    Allowance to Reduce Inventory to Market    Recovery Due to Market Incline of Inventory    Loss Due to Decline of Inventory to Market     Complete the last three columns in the 12/31/21 schedule below based upon the lower-of-cost-or-market rules. Item Original Cost Per Unit Replacement Cost Net Realizable Value Net Realizable Value Less Normal Profit Appropriate Inventory Value A $0.85 $0.35 $ $ $ B 0.40 0.35 C 0.65 0.70 D 0.80 0.70 E 0.70 0.65 $ $ Prepare the entries necessary at 12/31/21 based on the data above. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit 12/31/21     Recovery Due to Market Incline of Inventory    Allowance to Reduce Inventory to Market    Cost of Goods Sold    Loss Due to Decline of Inventory to Market    Profit Due to Market Decline of Inventory         Loss Due to Decline of Inventory to Market    Profit Due to Market Decline of Inventory    Recovery Due to Market Incline of Inventory    Allowance to Reduce Inventory to Market    Cost of Goods Sold     (To record cost of goods sold) 12/31/21     Profit Due to Market Decline of Inventory    Cost of Goods Sold    Recovery Due to Market Incline of Inventory    Allowance to Reduce Inventory to Market    Loss Due to Decline of Inventory to Market         Loss Due to Decline of Inventory to Market    Profit Due to Market Decline of Inventory    Recovery Due to Market Incline of Inventory    Allowance to Reduce Inventory to Market    Cost of Goods Sold     (To record profit/ loss) How are inventory losses disclosed on the income statement? Inventory losses can be disclosed separately below gross profit in administration expensesgross profit in selling expensesgross profit in operating expenses or they can be shown as part of cost of goods soldcost of goods available for salecost of goods manufactured . Question Attempts: 0 of 1 used SAVE FOR LATER SUBMIT ANSWER

Answer 1

1	Date	Account titles and explanation						Debit	Credit
	31-12-20	Loss Due to Decline of Inventory to Market				(6500-5100)		1400
		Allowance to Reduce Inventory to Market							1400
		(Adjustment to implement the lower-of-cost-or-market procedure)
				Ceiling limt For market price	Floor limt For market price	Designated Market price
2	Item	Original cost per unit	Replacement cost	Net realizable value	Net realizable value less normal profit	Repalcement cost subject to ceiling and floor limit	Appropriate inventoy value
		a	b	c	d	e	Lower of a or e
	A	0.85	0.35	0.9	0.6	0.6	0.6
	B	0.4	0.35	0.9	0.6	0.6	0.4
	C	0.65	0.7	0.9	0.6	0.7	0.65
	D	0.8	0.7	0.9	0.6	0.7	0.7
	E	0.7	0.65	0.9	0.6	0.65	0.65
		3.4					3
	Net realizable value=Selling price-Disposal cost=1-(1*10%)=1-0.10=$ 0.90
	Net realizable value less normal profit=0.90-(1*0.30)=0.60
3	Date	Account titles and explanation					Debit	Credit
	31-12-21	Cost of goods sold					1400
		Loss Due to Decline of Inventory to Market						1400
		(To record cost of goods sold0
	31-12-21	Loss Due to Decline of Inventory to Market				1500*(3.4-3)	600
		Allowance to Reduce Inventory to Market						600
		(To record profit/loss)
4	Inventory losses can be sold seperately below profit in operating expenses or they can be shown as part of cost of goods sold.