Question

At the end of 2016 in the retail division, Devin runs a report that shows all products that have not sold at all in 2016. This report shows the following three products that have been discontinued by the manufacturer:

Item L78 that cost $226 and 2 are on hand. Retail price $299

Item R56 that cost $65 and 6 are on hand. Retail price $99

Item B86 that cost $148 and 4 are on hand. Retail price $265

While investigating these items, we find out that for all of them, the sales crew has marked them down 25% but that has not resulted in sales. The lack of parts and support for discontinued models concerns most customers. In early January, 2017 - Devin marks down the models listed above at 50% off retail price. They put the items in a more prominent position in the store and promote them in the online catalog. Sales start to trickle in.

Required for 2016:

1. Calculate the loss from the application of LCM for Devin if they apply LCM to individual products as of December 31, 2016.
2. Show the journal entry to record the loss calculated in 1 if necessary.
3. Show the journal entry to sell all of items L78, R56 and B86 for cash in January and February, 2017.

Answer 1

Computation of loss from the application of LCM as of dec 2019
Given ITEM	Units	Cost ($)	Retail Price ($)	marked down value(by25%)	(Loss)/Profit
Item L78	2	226	299	224.25	1.75
Item R56	6	65	99	74.25	-9.25
Item B86	4	148	265	198.75	-50.75
Total	12	439	663	497.25	-58.25

Journal entry as of Dec 2016
Particulars			Debit $	Credit $
Abnormal loss A/C	Dr	58.25
To inventory A/C	Cr		58.25
(Being loss recognized on inventory)
Profit & Loss A/C	Dr	58.25
Abnormal loss A/C	Cr		58.25
(Being loss transferred to P&L)
Journal entry to sell all of items L78, R56 and B86 in 2017
Given ITEM	Units	Cost ($)	Price at 50% off retail price
Item L78	2	226	149.5

Item R56	6	65	49.5
Item B86	4	148	132.5
Total	12	439	331.5
Journal entry as of Jan 2017
Particulars			Debit $	Credit $
Cash A/C		Dr	331.5
To Sales A/C		Cr		331.5
(Being sold goods on cash)
Sales A/C		Dr	331.5
Profit & Loss A/C	Cr		331.5
(Being sales transferred to P&L)