Original Net Net Realizable Appropriate
Cost Replacement Realizable Value Less Inventory
Item Per Unit Cost Value Normal Profit Value
A $ .65 $ .45
B .45 .40
C .70 .75
D .75 .65
E .90 .85
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 1,000 units of each item in the 12/31/07 inventory.
(a) Prepare the entry at 12/31/06 necessary to implement the lower-of-cost-or-market procedure assuming Smith uses a contra account for its balance sheet.
(b) Complete the last three columns in the 12/31/07 schedule above based upon the lower-of-cost-or-market rules.
(c) Prepare the entry(ies) necessary at 12/31/07 based on the data above.
(d) How are inventory losses disclosed on the income statement?
The solution explains the Lower of Cost or Market journal entries for inventory
Lower-of-Cost-or-Market- Journal Entries & Retail Inventory Method
Please Help. I am studying and don't understand the following exercises...
E9-4 (Lower-of-Cost-or-Market?Journal Entries) Corrs Company began operations in 2007 and determined
its ending inventory at cost and at lower-of-cost-or-market at December 31, 2007, and December
31, 2008. This information is presented below.
12/31/07 $346,000 $327,000
12/31/08 410,000 395,000
(a) Prepare the journal entries required at December 31, 2007, and December 31, 2008, assuming
that the inventory is recorded at market, and a perpetual inventory system (direct method) is
(b) Prepare journal entries required at December 31, 2007, and December 31, 2008, assuming that the
inventory is recorded at cost and an allowance account is adjusted at each year-end under a perpetual
(c) Which of the two methods above provides the higher net income in each year?
E9-20 (Retail Inventory Method) The records of Ellen's Boutique report the following data for the
month of April.
Sales $99,000 Purchases (at cost) $48,000
Sales returns 2,000 Purchases (at sales price) 88,000
Markups 10,000 Purchase returns (at cost) 2,000
Markup cancellations 1,500 Purchase returns (at sales price) 3,000
Markdowns 9,300 Beginning inventory (at cost) 30,000
Markdown cancellations 2,800 Beginning inventory (at sales price) 46,500
Freight on purchases 2,400
Compute the ending inventory by the conventional retail inventory method.