(a)
Introduction:
The lower of cost or market rule follows the historical cost method as per Generally Accepted Accounting Principles accounting framework. The method states that the cost of inventory must be taken as the original cost or its current market price whichever cost is less as the inventory might have become obsolete, damaged or its value might have declined.
To find:
The amount of the inventory using lower cost or market applied on an item-by-item basis.
(b)
Introduction:
The lower of cost or market rule follows the historical cost method as per Generally Accepted Accounting Principles accounting framework. The method states that the cost of inventory must be taken as the original cost or its current market price whichever cost is less as the inventory might have become obsolete, damaged or its value might have declined.
To prepare:
The
(c)
Introduction:
The lower of cost or market rule follows the historical cost method as per Generally Accepted Accounting Principles accounting framework. The method states that the cost of inventory must be taken as the original cost or its current market price whichever cost is less as the inventory might have become obsolete, damaged or its value might have declined.
To state:
The impact of lower cost or market rule on financial statements and the impact of financial statement of a subsequent period in which inventory is sold.
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Cornerstones of Financial Accounting
- Lower of Cost or Market Sue Stone, the president of Tippecanoe Home Products, has prepared the following information for the companys television inventory at the end of 2019: Required: 1. Determine the carrying amount of the inventory using lower of cost or market applied on an item-by-item basis. 2. Prepare the journal entry required to value the inventory at lower of cost or market. 3. CONCEPTUAL CONNECTION What is the impact of applying the lower of cost or market rule on the financial statements of the current period? What is the impact on the financial statements of a subsequent period in which the inventory is sold?arrow_forwardGrimstad Company uses FIFO for internal reporting purposes and LIFO for financial reporting and income tax purposes. At the end of 2019, the following information was obtained from the inventory records: Required: 1. Prepare the necessary adjusting journal entry assuming that Grimstad converts the accounts to LIFO at the end of 2019. 2. Indicate how Grimstad would disclose the inventory value on its comparative balance sheets prepared at the end of 2019. 3. Next Level By how much would Grimstads cost of goods sold differ in 2019 if it used FIFO for external reporting?arrow_forwardLower of Cost or Market The accountant for Murphy Company prepared the following analysis of its inventory at year end: Required: 1. Compute the carrying value of the ending inventory using the lower of cost or market method applied on an item-by-item basis. 2. Prepare the journal entry required to value the inventory at lower of cost or market.arrow_forward
- Olson Company adopted the dollar-value LIFO method for inventory valuation at the beginning of 2015. The following information about the inventory at the end of each year is available from Olsons records: Required: 1. Calculate the dollar-value LIFO inventory at the end of each year. 2. Prepare the appropriate disclosures for the 2021 annual report if Olson uses current cost internally and LIFO for financial reporting.arrow_forwardWhich of the following financial statements would be impacted by a current-year ending inventory error, when using a periodic inventory updating system? A. balance sheet B. income statement C. neither statement D. both statementsarrow_forwardThe following information is taken from a companys records. Applying the lower-of-cost-or-market approach, what is the correct value that should be reported on the balance sheet for the inventory?arrow_forward
- Effects of Inventory Costing Methods Jefferson Enterprises has the following income statement data available for 2019: Jefferson uses a perpetual inventory accounting system and the average cost method. Jefferson is considering adopting the FIFO or LIFO method for costing inventory. Jeffersons accountant prepared the following data: Required: 1. Compute income before taxes, income taxes expense, and net income for each of the three inventory costing methods. (Round to the nearest dollar.) 2. CONCEPTUAL CONNECTION Why are the cost of goods sold and ending inventory amounts different for each of the three methods? What do these amounts tell us about the purchase price of inventory during the year? 3. CONCEPTUAL CONNECTION Which method produces the most realistic amount for net income? For inventory? Explain your answer.arrow_forwardOn December 31, 2019, the balances of the accounts appearing in the ledger of Wyman Company are as follows: Instructions 1. Does Wyman Company use a periodic or perpetual inventory system? Explain. 2. Prepare a multiple-step income statement for Wyman Company for the year ended December 31, 2019. The merchandise inventory as of December 31, 2019, was 305,000. The adjustment for estimated returns inventory for sales for the year ending December 31, 2019, was 30,000. 3. Prepare the closing entries for Wyman Company as of December 31, 2019. 4. What would the net income have been if the perpetual inventory system had been used?arrow_forwardWaterway Company began operations on January 1, 2018, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2021. The following information is available for the years 2018–2020. Net Income Computed Using Average-Cost Method FIFO Method LIFO Method 2018 $16,110 $18,880 $12,030 2019 17,960 20,820 13,910 2020 20,000 24,850 17,140 (a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit Enter an account title Enter a debit amount Enter a credit amount Enter an account title Enter a debit amount Enter a credit amount (b) Determine net income to be…arrow_forward
- Lupin Inc. utilizes the retail inventory method in estimating its inventory for interim statement purposes. Information in connection to the computation of the inventory at July 31, 2021 are the following: How much is Lupin's estimated inventory at July 31, 2021 under the average cost retail method?arrow_forwardThe accountant for Murphy Company prepared the following analysis of its inventory at year end: Required:1. Compute the carrying value of the ending inventory using the lower of cost or market method applied on an item-by-item basis.2. Prepare the journal entry required to value the inventory at lower of cost or market.arrow_forwardWhat amount of inventory should be reported in the December 31, 2019 Statement of Financial Position?. Please show me the solution in a good accounting from.arrow_forward
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