Sandals Company is preparing the annual financial statements dated December 31.

Question

Sandals Company is preparing the annual financial statements dated December 31. Ending inventory information about the four major items stocked for regular sale follows: Product Line Air Flow Blister Buster Coolonite Dudesly Quantity Unit Cost When Market Value on Hand Acquire(FIFO) at Year-End 30 $ 8 $ 10 115 40 42 55 50 40 16 21 Required: 1. Compute the amount that should be reported for the ending inventory using the LCM rule applied to each item. Ending Inventory 2. How will the write-down of inventory to lower of cost or market affect the company's expenses reported for the year ended December 31? Cost of goods sold will be by

Explanation / Answer

1) Calculate ending inventory under LCM method :

Cost of goods sold will be increase by 415

Quantity on hand Unit cost when acquired (FIFO) Market value at year end Ending inventory under Cost Rate under LCM Ending inventory under LCM Air flow 30 8 10 240 8 240 Blister Buster 115 42 40 4830 40 4600 Coolonite 37 55 50 2035 50 1850 Dudesly 40 16 21 640 16 640 Total 7745 7330

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