Question

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

		Per Unit
Item	Units	Cost			Market
Car audio equipment
Speakers	353	$	108		$	116
Stereos	268		129			119
Amplifiers	334		104			113
Subwoofers	212		70			60
Security equipment
Alarms	488		168			158
Locks	299		111			101
Cameras	220		330			340
Binocular equipment
Tripods	193		92			102
Stabilizers	178		113			123

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

Analysis

	Per Unit
Item	Units	Cost			Market			Lower of Cost or market value
Car audio equipment
Speakers	353	$	108		$	116		108*353 = 38124
Stereos	268		129			119		119*268 = 31892
Amplifiers	334		104			113		104*334 = 34736
Subwoofers	212		70			60		60*212 = 12720
Security equipment
Alarms	488		168			158		158*488 = 77104
Locks	299		111			101		299*101 = 30199
Cameras	220		330			340		330*220 = 72600
Binocular equipment
Tripods	193		92			102		193*92 = 17756

Stablizers 178 113 123 20114

2) Adjusting entry

Date	account and explanation	Debit	Credit
	Cost of goods sold	12670
	Merchandise inventory		12670