Question

physical inventory of Liverpool Company taken at December 31 reveals the following.

		Per Unit
Item	Units	Cost			Market
Car audio equipment
Speakers	339	$	94		$	102
Stereos	254		115			104
Amplifiers	320		90			99
Subwoofers	198		56			45
Security equipment
Alarms	474		154			129
Locks	285		97			88
Cameras	206		314			326
Binocular equipment
Tripods	179		74			88
Stabilizers	164		101			109

Required:
1. Calculate the lower of cost or market for the inventory applied separately to each item.
2. If the market amount is less than the recorded cost of the inventory, then record the LCM adjustment to the Merchandise Inventory account.

Answer 1

(1)-The lower of cost or market for the inventory applied separately to each item.

	Units	Per unit		Total		LCM Applied to individual items
		Cost	Market	Cost	Market
Car audio equipment
Speakers	339	94	102	31,866	34,578	31,866
Stereos	254	115	104	29,210	26,416	26,416
Amplifiers	320	90	99	28,800	31,680	28,800
Subwoofers	198	56	45	11,088	8,910	8,910
Security equipment
Alarms	474	154	129	72,996	61,146	61,146
Locks	285	97	88	27,645	25,080	25,080
Cameras	206	314	326	64,684	67,156	64,684
Binocular equipment
Tripods	179	74	88	13,246	15,752	13,246
Stabilizers	164	101	109	16,564	17,876	16,564
TOTAL				2,96,099		2,76,712

(2)-The journal entry to record the LCM adjustment to the Merchandise Inventory account.

Date	Account Tittles and Explanations	Debit ($)	Credit ($)
December 31	Cost of goods sild A/c [$296,099 - $276,712]	19,387
	To Merchandise Inventory A/c		19,387
	[The journal entry to record the LCM adjustment to the Merchandise Inventory account.]