Question

In: Accounting

At the end of the year, Randy’s Parts Co. had the following items in inventory: Item...

At the end of the year, Randy’s Parts Co. had the following items in inventory:

Item Quantity Unit Cost Unit Market
Value
P1 60 $ 85 $ 90
P2 40 70 72
P3 80 130 120
P4 70 125 130


Required
a. Determine the amount of ending inventory using the lower-of-cost-or-market rule applied to each individual inventory item.
b. Provide the adjustment necessary to write down the inventory based on Requirement a. Assume that Randy’s Parts Co. uses the perpetual inventory system.
c. Determine the amount of ending inventory, assuming that the lower-of-cost-or-market rule is applied to the total inventory in aggregate.
d. Provide the adjustment necessary to write down the inventory based on Requirement c. Assume that Randy’s Parts Co. uses the perpetual inventory system.

Solutions

Expert Solution

a.

Per unit Total Ending inventory (lower of cost or market value)
Item Units Cost Market Cost (Units*Cost) Market(Units*Market)
P1 60 $85 $90 $5,100 $5,400 $5,100
P2 40 $70 $72 $2,800 $2,880 $2,800
P3 80 $130 $120 $10,400 $9,600 $9,600
P4 70 $125 $130 $8,750 $9,100 $8,750
Total $27,050 $26,980 $26,250

b.

Event General Journal Debit Credit
1 Cost of goods sold ($27050- $26250) 800
       Inventory 800

c.

Per unit Total Ending inventory (lower of cost or market value)
Item Units Cost Market Cost (Units*Cost) Market(Units*Market)
P1 60 $85 $90 $5,100 $5,400
P2 40 $70 $72 $2,800 $2,880
P3 80 $130 $120 $10,400 $9,600
P4 70 $125 $130 $8,750 $9,100
Total $27,050 $26,980 $26,980

d.

Event General Journal Debit Credit
1 Cost of goods sold ($27050 - $26980) 70
       Inventory 70

ekkarill92 answered 1 year ago
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