Question

The following information pertains to Hagen Metal Work’s ending inventory for the current year:

						Unit					Unit
Item		Quantity				Cost					Market Value
C			90				$	24				$	16
D			75					22					20
K			40					25					28
M			22					15					17

Required
a. Determine the value of the ending inventory using the lower-of-cost-or-market rule applied to (1) each individual inventory item and (2) the inventory in aggregate.
  

b. Prepare any necessary journal entries, assuming the decline in value is immaterial, using the (1) individual method and (2) aggregate method. Hagen Metal Works uses the perpetual inventory system. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

Answer 1

Solution A

1. Ending inventory using the individual item method: $4270                                                                                      

2. Ending inventory using the aggregate method: $4434                                                                                

                                                                                               

a	b	c	d	b*c	b*d
Item	Quantity	Cost	Market Value	Total cost	Total Market	Lowest cost
C	90	24	16	2,160	1,440	1,440
D	75	22	20	1,650	1,500	1,500
K	40	25	28	1,000	1,120	1,000
M	22	15	17	330	374	330
				5,140	4,434	4,270

Solution B           

	debit	credit
cost of goods sold	870
inventory		870
cost of goods sold	706
inventory		706
	Working:
	1. Cost of goods sold: 5140-4270=	870
	2. Cost of goods sold: 5140-4434	706