Explore BrainMass
Share

Explore BrainMass

    Lower of cost or market

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    The Red Sky company is a wholesale company that purchases items from manufacturers and sells them to retail establishments.

    On December 31, 2010 Red Sky had the following in ending inventory:

    Product Code Quantity Cost Each Current Replacement Cost Each

    AB72YZ 1,970 $58 $63
    CT68WS 3,280 38 36
    FA92PL 1,640 51 57
    GG18CF 660 109 125
    IR39QL 1,310 131 145
    TG56LK 5,250 10 15
    HB83SD 985 154 152

    Product GG18CF has been replaced by product IR39QL. Red Sky expects to be able to sell its remaining inventory of product GG18CF at a deep discount to an outlet store for a net realizable value of $38 each.

    1) Compute the value of the inventory as of December 31, 2010 using each of the following assumptions:

    a. The lower of cost or market method is applied directly to each item.

    b. The lower of cost or market method is applied to the total inventory.

    2) Prepare any necessary adjusting journal entries assuming that the company used the direct method, using each of the following assumptions

    a. The lower of cost or market method is applied directly to each item.

    b. The lower of cost or market method is applied to the total inventory.

    © BrainMass Inc. brainmass.com October 10, 2019, 1:40 am ad1c9bdddf
    https://brainmass.com/business/inventory/lower-cost-market-343801

    Attachments

    Solution Summary

    The solution explains how to determine the inventory value using lower of cost or market and prepare the related journal entries

    $2.19