M7-10 Preparing the Journal Entry to Record Lower of Cost or Market (LCM) Adjust
ID: 2546454 • Letter: M
Question
M7-10 Preparing the Journal Entry to Record Lower of Cost or Market (LCM) Adjustments [LO 7-4] [The following information applies to the questions displayed below.] During its second and third quarters of fiscal 2014, Raspberry, Inc. wrote down its BB10 smartphone inventory by approximately $1,702,000,000 because its cost exceeded its market value. References Section Break M7-10 Preparing the Journal Entry to Record Lower of Cost or Market (LCM) Adjustments [LO 7-4] value: 0.83 points M7-10 Part 2 2. Prepare the journal entry that the company would have made to record the above adjustment. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) View transaction list Journal entry worksheet Record the inventory write down of $1,702,000,000 to LCM.Explanation / Answer
Conservatism concept in accounting requires inventory to be recorded at cost or market value whichever is less.
Therefore, the entity is required to write down the value of inventory whenever the value falls substantially below the cost.
Here the value decerased by $1702000000.
So the journal entry would be:
Loss from write down of Inventory A/c Dr $1702000000
To Inventory A/c $1702000000.
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