Question

The following information pertains to Hagen Metal Work’s ending inventory for the current year: Unit Unit Item Quantity Cost Market Value C 160 $ 15 $ 13 D 150 17 15 K 50 13 14 M 32 10 15

Required a. Determine the value of the ending inventory using the lower-of-cost-or-market rule applied to (1) each individual inventory item and (2) the inventory in aggregate.

b. Prepare any necessary journal entries, assuming the decline in value is immaterial, using the (1) individual method and (2) aggregate method. Hagen Metal Works uses the perpetual inventory system. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

value of the ending inventory using the lower-of-cost-or-market rule applied to (1) each individual inventory item = $5300

value of the ending inventory using the lower-of-cost-or-market rule applied to (2) the inventory in aggregate. = $5510

b. Preparation of Journal Entries

1. Individual Method

Debit Cost of Goods Sold $620 ($5920 - $5300)

Credit Inventory $620 ($5920 - $5300)

2. Aggregate Method

Debit Cost of Goods Sold $410 ($5920 - $5510)

Credit Inventory $410