Lower of Cost or Market

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

Item	Number of Units		Historical Cost per Unit		Market Value per Unit
Phone	600		$24		$14
Stereo	180		177		190
Electric shaver	220		30		35
MP3 alarm clock	430		26		25
Handheld game system	570		40		19

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. $

2. Prepare the journal entry required to value the inventory at lower of cost or market.

(Reduced inventory to market value)

3.Conceptual Connection: What is the impact of applying the lower of cost or market rule on the financial statements of the current period? What is the impact on the financial statements of a subsequent period in which the inventory is sold?