Late in the year, Software City began carrying WordCrafter, a new word processing software program. At December $31,$ Software City's

perpetual inventory records included the following cost layers in its inventory of WordCrafter programs.

Purchase Date

Nov. $14$

Dec. $12$

a$.$ At December $31,$ Software City takes a physical inventory and finds that all $28$ units of WordCrafter are on hand. However, the

current replacement cost $($wholesale price$)$ of this product is only $$250$ per unit.

Prepare the entries to record this write$-$down of the inventory to the lower$-$of$-$cost$-$or$-$market at December $31.($Company policy is to

charge LCM adjustments of less than $$2,000$ to Cost of Goods Sold and larger amounts to a separate loss account.$)$

Prepare the entries to record the cash sale of $15$ WordCrafter programs on January $9,$ at a retail price of $$350$ each. Assume that

Software City uses the FIFO flow assumption.

b$.$ Now assume that the current replacement cost of the WordCrafter programs is $$405$ each. A physical inventory finds only $25$ of

these programs on hand at December $31.($For this part, return to the original information and ignore what you did in part a$.)$

Prepare the journal entry to record the shrinkage loss assuming that Software City uses the FIFO flow assumption.

Prepare the journal entry to record the shrinkage loss assuming that Software City uses the LIFO flow assumption.

Complete this question by entering your answers in the tabs below.

Req A$2$

Req B$1$

Prepare the entries to record this write$-$down of the inventory to the lower$-$of$-$cost$-$or$-$market at December $31.($Company policy is to

charge LCM adjustments of less than $$2,000$ to Cost of Goods Sold and larger amounts to a separate loss account.$)($If no entry is

required for a transaction$/$event$,$ select $"$No journal entry required" in the first account field.$)$

Journal entry worksheet

$1$

Record the inventory write down of $28$ units of WordCrafter to the lower$-$of$-$

cost$-$or$-$market.