Some of L and K Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is$32,000 below the business’s cost of the goods, which was $98,000. Before any adjustmentsat the end of the period, the company’s Cost of Goods Sold account has a balanceof $410,000.
2. At what amount should the company report merchandise inventory on the balancesheet?
The ending inventory would be reported at $32,000 on the balance sheet.
Per the lower of cost or net realizable approach, the inventory should be shown at the lowest value among the two. This is because if the adjustment has not been made, there would be overvalued gross profit and ending inventory.
As discussed above, the inventory should be shown at the lower value of cost or net realizable value.
In the given case, the cost of the inventory is $98,000. But the net realizable value of the inventory is $32,000.
So, per the rule, the ending inventory should be shown at $32,000 on the balance sheet.
Question: The periodic inventory records of Flexon Prosthetics indicate the following for the month of July:
Jul. 1 Beginning merchandise inventory 6 units @ $ 60 each
8 Purchase 5 units @ $ 67 each
15 Purchase 10 units @ $ 70 each
26 Purchase 5 units @ $ 85 each
At July 31, Flexon counts four units of merchandise inventory on hand.
Compute ending merchandise inventory and cost of goods sold for Flexon using theFIFO inventory costing method.
Clarmont Resources, which uses the FIFO inventory costing method, has the following account balances at May 31, 2019, prior to releasing the financial statements for the year:
Merchandise Inventory, ending $ 13,500
Cost of Goods Sold 68,000
Net Sales Revenue 123,000
Clarmont has determined that the current replacement cost (current market value) of the May 31, 2019, ending merchandise inventory is $12,400.
1. Prepare any adjusting journal entry required from the information given.
Accounting for inventory using the perpetual inventory system—
FIFO, LIFO, and weighted-average, and comparing FIFO, LIFO, and weighted-average Steel Mill began August with 50 units of iron inventory that cost $35 each. During August, the company completed the following inventory transactions:
Units Unit Cost Unit Sales Price
Aug. 3 Sale 45 $ 85
8 Purchase 90 $ 54
21 Sale 85 88
30 Purchase 15 58
4. Determine the company’s cost of goods sold for August using FIFO, LIFO, and weighted-average inventory costing methods.
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