Question
Lower-of-Cost-or-Market : The December 31, 2014 inventory of Risen Company consisted of four products, for which certain information is provided below. Original Replacement Estimated Expected
Lower-of-Cost-or-Market:
The December 31, 2014 inventory of Risen Company consisted of four products, for which certain information is provided below.
Original | Replacement | Estimated | Expected | Normal Profit | |
Product | Cost | Cost | Disposal Cost | Selling Price | on Sales |
A | $25.00 | $22.00 | $6.50 | $40.00 | 20% |
B | $42.00 | $40.00 | $12.00 | $48.00 | 25% |
C | $120.00 | $115.00 | $25.00 | $190.00 | 30% |
D | $18.00 | $15.80 | $3.00 | $26.00 | 10% |
Instructions
a) Using the lower-of-cost-or-market approach applied on an individual-item basis, compute the inventory valuation that should be reported for each product on December 31, 2014.
b) Using the lower-of-cost-or-market approach applied on the total inventory, compute the inventory valuation that should be reported for each product on December 31, 2014.
c) Prepare the journal entry (if any) needed to record Risen's inventory at the lower-of-cost-or-market from part (a) above. Assume that Risen uses an allowance account and that there is no previous balance in the allowance account. Also assume that Risen uses the loss approach for inventory valuation adjustments.
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