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Chapter 6: Q4TI (page 342)

T. J. Jackson Supplies had merchandise inventory that cost \(1,300. The market value of the merchandise inventory is \)750

.

What value should Jackson Supplies show on the balance sheet for merchandise inventory? Record the adjusting entry, if one is needed.

Short Answer

Expert verified

The adjustment entry would be made for $550.

Step by step solution

01

Lower cost or market value rule

Inventory valuation is based on two approaches. One approach is related to the computation of ending inventory and COGS based on cost flow assumption. The second approach is to apply the conservative principle by matching the computed cost with the market cost.

The inventory would always be reported on the balance sheet at the lower of cost or market value.

If the market value is lower than the cost then the necessary adjustment would be made with the difference amount.

02

Adjustment entry

Adjustmentamount=Cost-MarketValue=$1,300-$750=$550

Journal entry

Date

Description

Debit

Credit

Cost of goods sold

$550

Merchandise Inventory

$550

Being inventory is adjusted for the lost value

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Most popular questions from this chapter

Question:Super Mart, a regional convenience store chain, maintains milk inventory by the gallon.

The first month鈥檚 milk purchases and sales at its Freeport, Florida, location follow:

Nov. 2 Purchased 11 gallons @ \(2.15 each

6 Purchased 2 gallons @ \)2.80 each

8 Sold 6 gallons of milk to a customer

13 Purchased 3 gallons @ $2.85 each

14 Sold 4 gallons of milk to a customer

Requirements

3. Determine the amount that would be reported in ending merchandise inventoryon November 15 using the weighted-average inventory costing method. Round allamounts to the nearest cent.

Question:Refer to Short Exercises S6-4 through S6-6. After completing those exercises, answer the following questions:

Requirements

1. Which inventory costing method produced the lowest cost of goods sold?

Question:Golf Unlimited carries an inventory of putters and other golf clubs. The sales price of each putter is \(119. Company records indicate the following for a particular line ofGolf Unlimited鈥檚 putters:

Date Item Quantity Unit Cost

Nov. 1 Balance 24 \) 53

6 Sale 20

8 Purchase 30 70

17 Sale 30

30 Sale 2

Requirements

2. Journalize Golf Unlimited鈥檚 inventory transactions using the FIFO inventory costingmethod. (Assume purchases and sales are made on account.)

How is days鈥� sales in inventory calculated, and what does it measure?

Fit Gym began January with merchandise inventory of 78 crates of vitamins that cost a total of \(4,290. During the month, Fit Gym purchased and sold merchandise on account as follows:

Jan. 5 Purchase 156 crates @ \) 64 each

13 Sale 180 crates @ \( 100 each

18 Purchase 114 crates @ \) 75 each

26 Sale 150 crates @ $ 116 each

Requirements

4. If the business wanted to pay the least amount of income taxes possible, which method would it choose?
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