Question

The following information pertains to Hagen Metal Work’s ending inventory for the current year:

				Unit				Unit
Item	Quantity			Cost				Market Value
C		250			$	12			$	9
D		240				14				13
K		68				10				13
M		59				7				13

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

Item	Quantity	Cost	Market value	Lower of cost or market value
C	250	250*12 =3000	250*9 = 2250	2250
D	240	240*14 = 3360	240*13 = 3120	3120
K	68	68*10 = 680 = 680	68*13 = 884	680
M	59	59*7 = 413	59*13 = 767	413
	617	7453	7021	6463

a. The value of inventory is given below

Individual item method	6463
Aggregate method	7021

b.

The adjustment required under both methods are:

Individual method = 7453 – 6463 = 990

Aggregate method = 7021-6463 =558

The required journal entries are:

Date	Particulars	Debit ($)	Credit ($)
Individual method	Cost of goods sold	990
	Inventory		990
Aggregate method	Cost of goods sold	558
	Inventory		558

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