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Sandals Company is preparing the annual financial statements dated December 31. Ending inventory information about the...

Sandals Company is preparing the annual financial statements dated December 31. Ending inventory information about the four major items stocked for regular sale follows:
  Product Line Quantity
on Hand		 Unit Cost When Acquire(FIFO) Market Value
at Year-End
  Air Flow 30 $ 15 $ 17
  Blister Buster 90 34 32
  Coolonite 32 70 65
  Dudesly 25 24 29
Required:
1.

Compute the amount that should be reported for the ending inventory using the LCM rule applied to each item.
2.

How will the write-down of inventory to lower of cost or market affect the company’s expenses reported for the year ended December 31?

       

Business   Accounting   
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Answer #1

1) Compute the amount that should be reported for the ending inventory using the LCM rule applied to each item.

Cost Market value Value under LCM
Air flow 450 510 450
Blister buster 3060 2880 2880
Coolonite 2240 2080 2080
Dudesly 600 725 600
Total 6350 6195 6010

2) Journal entry :

Date accounts & explanation debit credit
Loss due to decline in inventory (6350-6010) 340
Allowance to reduce inventory to market 340
(To record write down)
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