Accounting principles for inventory and applying the lower-of-cost-or-market rule
Learning Objective 1, 4
Some of M and C Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is 524,000 below the business’s cost of the goods, which was $97,000. Before any adjustments at the end of the period, the company’s Cost of Goods Sold account has a balance of $380,000.
Requirements
1. Journalize any required entries.
2. At what amount should the company report merchandise inventory on the
3. At what amount should the company report cost of goods sold on the income statement?
4. Which accounting principle or concept is most relevant to this situation?
Want to see the full answer?
Check out a sample textbook solutionChapter 6 Solutions
Horngren's Accounting (12th Edition)
- ( Appendices 6A and 6B) Inventory Costing Methods Edwards Company began operations in February 2019. Edwards accounting records provide the following data for the remainder of 2019 for one of the items the company sells: Â Edwards uses a periodic inventory system. All purchases and sales were for cash. Required: 1. Compute cost of goods sold and the cost of ending inventory using FIFO. 2. Compute cost of goods sold and the cost of ending inventory using LIFO. 3. Compute cost of goods sold and the cost of ending inventory using the average cost method. ( Note: Use four decimal places for per-unit calculations and round all other numbers to the nearest dollar.) 4. Prepare the journal entries to record these transactions assuming Edwards chooses to use the FIFO method. 5. CONCEPTUAL CONNECTION Which method would result in the lowest amount paid for taxes? 6. CONCEPTUAL CONNECTION Refer to Problem 6-67B and compare your results. What are the differences? Be sure to explain why the differences occurred.arrow_forwardb. Beginning inventory, purchases and sales data for a company are as follows: April 1 Invertory 120 units at $26 April 10 Sale 90 units April 15 Purchase 140 units at $28 April 30 Sale 110 units The business maintains a perpetual inventory system and costing by FIFO. a. What is the cost of merchandise sold on April 10, 2022? b. What is the cost of merchandise sold on April 30, 2022? c. What is the ending inventory value on April 30, 2022? d. Based on the data, would you expect the inventory to be higher or lower using LIFO method? Explain.arrow_forwardHelp Save &Exit Subr Seved Foctoring Enabled: Exam 2 (Chapters 6,7,8,9) Spring 2.. Mercury Company has only one Inventory pool. On December 31, 2018, Mercury adopted the dollar-value LIFO Inventory method. The Inventory on that date using the dollar-value LIFO method was $211,000. Inventory data are as follows: 18 Ending Inventory at Year-End Costs $254,100 336,950 339,600 Ending Inventory at Base Year Costa $242,000 293,000 283,000 Year 2019 2020 2021 Required: Compute the inventory at December 31, 2019, 2020, and 2021, using the dollar-value LIFO method. (Round "Year end cost Index" to 2 declmal places.) 13 Ending Inventory DVL Cost Inventory Layers Converted to Cost Inventory Layers Converted to Base Year Cost Inventory at Year- End Cost Year-End Cost Index Inventory Layers at Base Year Cost Inventory Layers at Base Year Cost Year-End Cost Index Inventory Layers Converted to Cost Date Base 12/31/2018 Base 12/31/2019 2019 %3D Base 12/31/2020 2019 2020 Base 12/31/2021 2019 2020arrow_forward
- Current Attempt in Progress The following information is available for Yancey Company: Beginning inventory 600 units at $4 First purchase 900 units at $6 Second purchase 500 units at $7.20 Assume that Yancey uses a periodic inventory system and that there are 700 units left at the end of the month. Compute the cost of ending inventory and the cost of goods sold using the average-cost method. Cost of ending inventory $enter a cost of ending inventory in dollars Cost of goods sold Save for Later Attempts: 0 of 1 used Submit Answerarrow_forwardTask 1 : Journalizing using Perpetual Inventory System Directions: Prepare the general journal entries to record these transactions using a perpetual inventory system. (Record all purchases initially at the gross invoice amount) Please use Journal sheets for this task. Wong's Company had the following transactions during December 2020: December 1 – Sold merchandise for credit for $5,000 terms 3/10,n/30. The items sold had a cost of $3,500. 2 – Purchased merchandise for cash, $720. 4 – Purchased merchandise on credit for $2,600, terms 1/20,n/40. 10- Issued a credit memorandum for $300 to a customer who returned merchandise purchased on November 29. The return items had a cost of $210. 14- Received payment for merchandise sold on December 1. 12 – Received a credit memorandum for the return of faulty merchandise purchased on December 4 for $600. 13 – Paid freight charges of…arrow_forwardLearning Objectives 1, 2: Show how to account for inventory in a perpetual systemusing the average-costing method) Western Trading Company purchases inventory in cratesof merchandise; each crate of inventory is a unit. The fiscal year of Western Trading ends eachJanuary 31. Assume you are dealing with a single Western Trading store in Nashville, Tennessee. The Nashville store began the year with an inventory of 20,000 units that cost a total of$1,060,000. During the year, the store purchased merchandise on account as follows:July (29,000 units at $59) ..................................... $1,711,000November (49,000 units at $63) ........................... 3,087,000December (59,000 units at $69)............................ 4,071,000Total purchases..................................................... $8,869,000Cash payments on account totaled $8,541,000. During fiscal year 2018, the store sold 155,000units of merchandise for $15,887,500, of which $4,900,000 was for cash and the balance…arrow_forward
- (Question EX 7-11 Immediate Accounting I 16E Textbook page 380) Assume the business below maintains a perpetual inventory system. Determine the cost of merchandise sold for each sale and the inventory balance after each sale, assuming the LIFO method. (Present the data in the form illustrated in Exhibit 4) Jan. 1 Inventory 4,000 units at $20 April 19 Sale 2,500 units June 30 Purchase 6,000 units at $24 Sept. 2 Sale 4,500 units Nov. 15 Purchase 1,000 units at $25arrow_forwardLESSON 10: THE PERPETUAL SYSTEM ACTIVITY L. Give the necessary journal entries under the periodic inventory system and the perpetual inventory system. Bum Supplies purchases P 150,000 worth of merchandise from Clumsy Traders on account, terms 1/10, n/30 on August 15. P 20,000 worth of damage goods were returned to Clumsy Traders the following day. Full payment was made on August 25. Periodic Inventory Perpetual Inventory Aug 15 16 25arrow_forwardCurrent Attempt in Progress The following information was available for Free for Sunland Limited at December 31, 2022: Beginning inventory $220000 Ending inventory Cost of goods sold Net sales 260000 O 61.7 days. O 45.2 days. O 36.2 days. O 52.1 days. 1680000 3 2840000 Free for Sunland days in inventory wasarrow_forward
- Current Attempt in Progress Cullumber Inc. is a retailer operating in Calgary, Alberta. Cullumber uses the perpetual inventory system. Assume that there are no credit transactions; all amounts are settled in cash. You are provided with the following information for Cullumber for the month of January 2025. Date Dec. 31 Jan 2 Jan. 6 Jan. 9 Jan 10 Jan. 23 Jan. 30 Description Ending inventory Purchase Sale Purchase Sale Purchase Sale Quantity Unit Cost or Selling Price $21 162 109 177 66 60 100 120 21 38 25 41 28 48arrow_forward1 your client, Awesome Inc has asked you to help with valuing its closing inventory below details are from Trial Balance $154,300.00 $18,780.00 $119,325.00 Sales Opening Inventory Purchases Awesome generally has a gross profit of 25%arrow_forwardPerpetual inventory using FIFO Beginning inventory, purchases, Nov. 1 Inventory 10 Sale 15 Purchase 20 Sale 20 units 24 Sale 9 units 30 Purchase 33 units at $56 The business maintains a perpetual inventory system, costing by the first-in, first-out method. a. Determine the cost of goods sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 3. Under FIFO, if units are in inventory at two different costs, enter the units with the LOWER unit cost first in the Cost of Goods Sold Unit Cost column and in the Inventory Unit Cost column. Date Nov. 1 Nov. 10 Nov. 15 Nov. 20 Nov. 24 Nov. 30 Quantity Purchases Purchases Purchased Unit Cost Total Cost 21 and sales data for DVD players are as follows: 50 units at $50 37 units 21 units at $53 Nov. 30 Balances 53 1,113 0 0 First-in, First-out Method DVD Players Quantity Sold 37 Cost of Goods Sold Unit Cost 50 000 000 Cost of Goods Sold Total Cost 1,850 1180000 000 100000 000 160000 0000…arrow_forward
- Century 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:CengageCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning