Lower of Cost or Market Yang Manufacturing sells a limited line of specially mad

Question

Lower of Cost or Market

Yang Manufacturing sells a limited line of specially made products, using television advertising campaigns in large cities. At year end, Yang has the following data for its inventory:

Required:

1. Compute the carrying value of the ending inventory using the lower of cost or market rule applied on an item-by-item basis.
$

Feedback

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 Number of Units Historical Cost per Unit Market Value per Unit Phone 600 $24 $18 Stereo 180 177 190 Electric shaver 220 30 35 MP3 alarm clock 430 26 25 Handheld game system 570 40 19

Explanation / Answer

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.

Unit Cost Market value Lower of cost or market value Phone 600 14400 10800 10800 Stereo 180 177 190 31860 Electric shaver 220 30 35 6600 MP3 alarm clock 430 26 25 10750 Handheld game system 570 40 19 10830 Total 70840

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