/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Question 5BE Kumar Inc. uses LIFO inventory c... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 9: Question 5BE (page 475)

Kumar Inc. uses LIFO inventory costing. At January 1, 2017, inventory was \(214,000 at both cost and market value. At December 31, 2017, the inventory was \)286,000 at cost and $265,000 at market value. Prepare the necessary December 31 entry under (a) the cost-of-goods-sold method and (b) the loss method.

Short Answer

Expert verified

(a) To record the decline in inventory, the cost of goods sold will be debited, and the inventory will be credited by $21,000, respectively.

(b) To record the decline, the loss due to the decline of inventory to market will be debited, and the allowance to reduce inventory to market will be credited by $21,000, respectively.

Step by step solution

01

Calculation of decline in inventory

Inventory at cost equals $286,000 and at market equals $265,000. Hence, per the lower-of-cost-or-market method, the inventory value equals $265,000.

The decline is calculated as follows:

Decline=Cost-Lowerofcostormarket=$286,000-$265,000=$21,000

02

Journal entry under the cost of goods sold method

(a) Entry under the cost of goods sold method is as follows:

Date

Accounts

Debit

Credit

Cost of Goods Sold

$21,000

Inventory

$21,000

03

Journal entry under the loss method

(b) Entry under the loss method is as follows:

Date

Accounts

Debit

Credit

Loss Due to Decline of Inventory to Market

$21,000

Allowance to Reduce Inventory to Market

$21,000

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

The records of Ellen鈥檚 Boutique report the following data for the month of April. Sales revenue \(99,000 Purchases (at cost) \)48,000 Sales returns 2,000 Purchases (at sales price) 88,000 Markups 10,000 Purchase returns (at cost) 2,000 Markup cancellations 1,500 Purchase returns (at sales price) 3,000 Markdowns 9,300 Beginning inventory (at cost) 30,000 Markdown cancellations 2,800 Beginning inventory (at sales price) 46,500 Freight on purchases 2,400 Instructions Compute the ending inventory by the conventional retail inventory method

Presented below is information related to Bobby Engram Company. Cost Retail Beginning inventory \( 58,000 \)100,000 Purchases (net) 122,000 200,000 Net markups 10,345 Net markdowns 26,135 Sales revenue 186,000 Instructions (a) Compute the ending inventory at retail. (b) Compute a cost-to-retail percentage (round to two decimals) under the following conditions. (1) Excluding both markups and markdowns. (2) Excluding markups but including markdowns. (3) Excluding markdowns but including markups. (4) Including both markdowns and markups. (c) Which of the methods in (b) above (1, 2, 3, or 4) does the following? (1) Provides the most conservative estimate of ending inventory. (2) Provides an approximation of lower-of-cost-or-market. (3) Is used in the conventional retail method. (d) Compute ending inventory at lower-of-cost-or-market (round to nearest dollar). (e) Compute cost of goods sold based on (d). (f) Compute gross margin based on (d).

Remmers Company manufactures desks. Most of the company鈥檚 desks are standard models and are sold on the basis of catalog prices. At December 31, 2017, the following finished desks (10 desks in each category) appear in the company鈥檚 inventory. Finished Desks A B C D 2017 catalog selling price \(45 \)48 \(90 \)105 FIFO cost per inventory list 12/31/17 47 45 83 96 Estimated cost to complete and sell 5 11 26 20 2018 catalog selling price 50 54 90 120 The 2017 catalog was in effect through November 2017, and the 2018 catalog is effective as of December 1; catalog prices are net of the usual discounts.

Starfish Company (a company using GAAP and the LIFO inventory method) is considering changing to IFRS and the FIFO inventory method. How would a comparison of these methods affect Starfish鈥檚 financials? (a) During a period of inflation, working capital would decrease when IFRS and the FIFO inventory method are used as compared to GAAP and LIFO. (b) During a period of inflation, the taxes will decrease when IFRS and the FIFO inventory method are used as compared to GAAP and LIFO. During a period of inflation, net income would be greater if IFRS and the FIFO inventory method are used as compared to GAAP and LIFO. (d) During a period of inflation, the current ratio would decrease when IFRS and the FIFO inventory methodare used as compared to GAAP and LIFO.

Question:Why are inventories valued at the lower-of-cost-or-net realizable value (LCNRV)? What are the arguments against the use of the LCNRV method of valuing inventories?
See all solutions

Recommended explanations on Business Studies Textbooks

Business Data Analytics

Read Explanation

Nature of Business

Read Explanation

Public Relations Business Studies

Read Explanation

Financial Performance

Read Explanation

Project Planning & Management

Read Explanation

Intermediate Accounting

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.