Question

Problem 9-5 Pearl Co. follows the practice of valuing its inventory at the lower-of-cost-or-market. The following information is available from the company’s inventory records as of December 31, 2017. Item Quantity Unit Cost Replacement Cost/Unit Estimated Selling Price/Unit Completion & Disposal Cost/Unit Normal Profit Margin/Unit A 1,800 $8.18 $9.16 $11.45 $1.64 $1.96 B 1,500 8.94 8.61 10.25 0.98 1.31 C 1,700 6.10 5.89 7.85 1.25 0.65 D 1,700 4.14 4.58 6.87 0.87 1.64 E 2,100 6.98 6.87 7.30 0.76 1.09 Greg Forda is an accounting clerk in the accounting department of Pearl Co., and he cannot understand why the market value keeps changing from replacement cost to net realizable value to something that he cannot even figure out. Greg is very confused, and he is the one who records inventory purchases and calculates ending inventory. You are the manager of the department and an accountant.

Calculate the lower-of-cost-or-market using the individual-item approach. Lower-of-Cost-or-Market (Per unit basis) Item A $ Item B $ Item C $ Item D $ Item E $ SHOW LIST OF ACCOUNTS LINK TO TEXT

Show the journal entry he will need to make in order to write down the ending inventory from cost to market. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit Cost of Goods sold Method: The Loss method:

Answer 1

ANSWER

Product	Ceiling	Floor	Market	Cost	LCM	Quantity	total
A	9.81	7.85	9.16	8.18	8.18	1,800	14,724
B	9.27	7.96	8.61	8.94	8.61	1,500	12,915
C	6.6	5.95	5.89	6.10	5.89	1,700	10,013
D	6	4.36	4.58	4.14	4.14	1,700	7,038
E	6.54	5.45	6.87	6.98	6.87	2,100	14,427
Ceiling = selling price - disposal price
Floor = ceiling - normal profit margin
Market = replacement cost
if current replacement cost >ceiling then ceiling is market
if current replacement cost <floor then floor is market

Item	Quantity	cost	Market
A	1,800	14,724	16,488
B	1,500	13,410	12,915
C	1,700	10,370	10,013
D	1,700	7,038	7,786
E	2,100	14,658	14,427
		60,200	61,629

Account Titles and Explanation	Debit	Credit
Cost of Goods sold Method:
Cost of Goods sold(61,629-60,200)	$1,429
Allowance to Reduce Inventory to Market		1,429
The Loss method:
Loss Due to Decline of Inventory to NRV	1,429
Allowance to Reduce Inventory to Market		1,429

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