(1) Lower of Cost or Market

Brown Company uses the LIFO inventory method and has the following information available regarding each unit of its inventory:

Selling price	$5,200
Costs of completion	250
Current replacement cost	5,000
Normal profit margin	2,400

Based on this information, determine the amount that should be used as the market value to apply the lower of cost or market rule to determine Browns ending inventory.

$ per unit

(2) Lower of Cost or Market

Black Corporation uses the LIFO inventory method. Each unit of its inventory has a net realizable value of $300, a normal profit margin of $35, and a current replacement cost of $250. Determine the amount per unit that should be used as the market value to apply the lower of cost or market rule to determine Blacks ending inventory.

$ per unit

(3)

Lower of Cost or Market

Blue Corporation uses the FIFO inventory method. Each unit of its inventory has a net realizable value of $2,850, a normal profit margin of $1,000, and a current replacement cost of $1,900. Determine the amount per unit that should be used as the market value to apply the lower of cost or market rule to determine Blue's ending inventory.

$ per unit

(4) Lower of Cost or Market: Record Reductions to Market

Paul Corporation reports the following inventory information:

	Cost	Market
December 31, 2016	$312,000	$298,000

	Required:
	Prepare the journal entry to record the reductions to market assuming Paul uses a perpetual inventory system and the direct method.

CHART OF ACCOUNTS

Chapter 8

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
131	Inventory
132	Allowance to Reduce Inventory to Market
141	Prepaid Insurance
181	Equipment
189	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
221	Salaries Payable
231	Unearned Rent
261	Income Taxes Payable

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
411	Sales Revenue

	EXPENSES
500	Cost of Goods Sold
505	Loss Due to Market Valuation
510	Purchases
531	Salaries Expense
532	Delivery Expense
533	Insurance Expense
534	Utilities Expense
541	Depreciation Expense
559	Miscellaneous Expenses
910	Income Tax Expense

Prepare the journal entry to record the inventory reduction to market on December 31 assuming Paul uses a perpetual inventory system and the direct method.

PAGE 9

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2

(5) Lower of Cost or Market: Record Reductions to Market

Paul Corporation reports the following inventory information:

	Cost	Market
December 31, 2016	$312,000	$298,000

	Required:
	Prepare the journal entry to record the reductions to market assuming Paul uses a perpetual inventory system and the allowance method.

CHART OF ACCOUNTS

Paul Corporation

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
131	Inventory
132	Allowance to Reduce Inventory to Market
141	Prepaid Insurance
181	Equipment
189	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
221	Salaries Payable
231	Unearned Rent
261	Income Taxes Payable

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
411	Sales Revenue

	EXPENSES
500	Cost of Goods Sold
505	Loss Due to Market Valuation
510	Purchases
531	Salaries Expense
532	Delivery Expense
533	Insurance Expense
534	Utilities Expense
541	Depreciation Expense
559	Miscellaneous Expenses
910	Income Tax Expense

Prepare the journal entry to record the inventory reduction to market on December 31 assuming Paul uses a perpetual inventory system and the allowance method.

PAGE 9

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2