Lower of Cost or Market The accountant for Murphy Company prepared the following
ID: 2511874 • Letter: L
Question
Lower 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.
$
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1. Compare actual cost of inventory to its market value. The lower amount is the value of inventory. If market value is lower, the inventory account is adjusted.
2. Prepare the journal entry required to value the inventory at lower of cost or market.
Item Units Cost per Unit Net Realizable Value RSK-89013 540 $38 $44 LKW-91247 329 49 45 QEC-57429 462 25 33Explanation / Answer
1) LCM total item units amount RSK-89013 540 38 20520 LKW-91247 329 45 14805 QEC-57429 462 25 11550 total amount 46875 Carrying value of inventory = $46875 cost total 2) item units per unit amount RSK-89013 540 38 20520 LKW-91247 329 49 16121 QEC-57429 462 25 11550 total amount 48191 Adjusting entry Accounting titles & explanations debit Credit cost of goods sold 1316 inventory 1,316 (48,191-46,875
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