Intermediate Accounting
3rd Edition
ISBN: 9780136912644
Author: Elizabeth A. Gordon; Jana S. Raedy; Alexander J. Sannella
Publisher: Pearson Education (US)
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Textbook Question
Chapter 10, Problem 10.9P
Lower of Cost or Market. O'Sullivan Corporation provided the following information regarding its ending inventory for the current year O’Sullivan manufactures three types of athletic shoes Selling costs are 10% of the selling price The company values its ending inventory at the lower of LIFO cost or market.
There are 1,000 units of each product in inventory.
| Product | LIFO Cost | Current Replacement Cost |
Selling Price | Normal Profit Margin |
| Assurant | $210 | $225 | $260 | 30% |
| Biglow | 250 | 220 | 280 | 20% |
| Cartata | 170 | 140 | 200 | 15% |
*As a percentage of selling price.
Required
- a. Compute the amount of write-down, if any, on both an individual and a total inventory basis.
- b. Prepare any
journal entries necessary to reflect the inventory at lower of cost or market assuming that O’Sullivan uses the indirect method. - c. Repeat requirement (b) assuming that O’Sullivan uses the direct method to record any required write-down to lower of cost or market.
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Students have asked these similar questions
Herman Company has three products in its ending inventory. Specific per unit data at the end of the year for each of the products are as follows:
Product 1
Product 2
Product 3
Cost
$
20
$
90
$
50
Selling price
40
120
70
Costs to sell
6
40
10
Required:What unit values should Herman use for each of its products when applying the lower of cost or net realizable value (LCNRV) rule to ending inventory?
Product
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NRV
Per Unit Inventory Value
1
2
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SLR Corporation has 1,000 units of each of its two products in its year-end inventory. Per unit data for each of the products are as follows:
Product 1
Product 2
Cost
$50
$34
Selling price
$70
$36
Costs to sell
$6
$4
Determine the carrying value of SLR’s inventory assuming that the lower of cost or net realizable value (LCNRV) rule is applied to individual products.
Product
Cost
NRV
Per Unit Inventory Value
Unit
Cost
Lower of Cost or NRV
1
1,000
2
1,000
Cost
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What is the before-tax income effect of the LCNRV adjustment?
(higher by/lower by/no effect) __________ (amount)
Herman Company has three products in its ending inventory. Specific per unit data at the end of the year for each of the products are as follows:
Product 1
Product 2
Product 3
Cost
$
20
$
90
$
50
Replacement cost
18
85
40
Selling price
40
120
70
Selling costs
6
40
10
Normal profit
5
30
12
Required:What unit values should Herman use for each of its products when applying the lower of cost or market (LCM) rule to ending inventory?
Product
Cost
Replacement cost
NRV
NRV - NP
Market
Per Unit Inventory Value
1
$20
$18
2
90
85
3
50
40
Chapter 10 Solutions
Intermediate Accounting
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