Question

Question 20 At 12/31/20, the end of Sunland Company's first year of business, inventory was $7,100 and $4,850 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 $0.80 $0.45 B 0.55 0.50 C 0.75 0.80 D 0.85 0.75 E 0.85 0.80 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 1,300 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 Sunland 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     Cost of Goods Sold    Profit Due to Market Decline of Inventory    Loss Due to Decline of Inventory to Market    Recovery Due to Market Incline of Inventory    Allowance to Reduce Inventory to Market         Loss Due to Decline of Inventory to Market    Cost of Goods Sold    Profit Due to Market Decline of Inventory    Recovery Due to Market Incline of Inventory    Allowance to Reduce 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 $0.80 $0.45 $ $ $ B 0.55 0.50 C 0.75 0.80 D 0.85 0.75 E 0.85 0.80 $ $

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     Cost of Goods Sold    Allowance to Reduce Inventory to Market    Loss Due to Decline of Inventory to Market    Recovery Due to Market Incline of Inventory    Profit Due to Market Decline of Inventory         Cost of Goods Sold    Allowance to Reduce 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     (To record cost of goods sold) 12/31/21     Recovery Due to Market Incline of Inventory    Allowance to Reduce Inventory to Market    Cost of Goods Sold    Profit Due to Market Decline of Inventory    Loss Due to Decline of Inventory to Market         Recovery Due to Market Incline of Inventory    Loss Due to Decline of Inventory to Market    Cost of Goods Sold    Allowance to Reduce Inventory to Market    Profit Due to Market Decline of Inventory     (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 operating expensesgross profit in selling expenses or they can be shown as part of cost of goods soldcost of goods manufacturedcost of goods available for sale .

Answer 1

1.

	Debit	Credit
Loss Due to Market Decline of Inventory	2,250.00
Allowance to Reduce Inventory to Market		2,250.00

2.

Item	Original Cost per unit	Replacement Cost	Net Realizable Value	Net Realizable value less normal profit	Appropriate Inventory Value
A	0.80	0.45	0.90	0.60	0.60
B	0.55	0.50	0.90	0.60	0.55
C	0.75	0.80	0.90	0.60	0.75
D	0.85	0.75	0.90	0.60	0.75
E	0.85	0.80	0.90	0.60	0.80
					3.45

1,300 x 3.45 = 4,485

3.

	Debit	Credit
Allowance to Reduce Inventory to Market	2,250.00
Cost of Goods Sold		2,250.00

	Debit	Credit
Loss Due to Market Decline of Inventory	455.00
Allowance to Reduce Inventory to Market		455.00

4.Inventory losses  can be shown as cost of goods sold or can be disclosed separetly