Page 1 of 2 Title ACC 301 Lower-of-Cost-or-Market Example Fall 2021 Assume a company had the following three products at December 31, 2021: Current Estimated Cost to Item Qty. Cost Replacement Selling Sell Cost Price A 1 $87 $85 $120 $15 Normal Profit Margin (Percent of Selling Price 20% B 5 $58 $ 80 $10 10% $60 $35 C 7 $41 $46 $7 10% Required: 1. Using the lower-of-cost-or-market approach (LCM), calculate the ceiling, floor and market of each item. Item A: Ceiling: $. Floor: $ Market $ Item B: Ceiling: Floor: $ Market $ Item C: Ceiling: $. Floor. $ Market $ 2. Calculate the inventory value that should appear on the December 31, 2021 Balance Sheet using: a. Individual item basis: $. b. Total basis: $ Page 2 of 2 Lower-of-Cost-or-Market Example - Continued: 3. Assume a company has a perpetual inventory system and uses an "allowance account to record its inventory adjustments to market. Prepare the adjusting journal entries, if any, to record inventory at market under each of the following approaches: a) Cost-of-goods-sold method Individual items basis: Total basis: b) Loss method Individual items basis: Total basis: Page 1 of 2 Title ACC 301 Lower-of-Cost-or-Market Example Fall 2021 Assume a company had the following three products at December 31, 2021: Current Estimated Cost to Item Qty. Cost Replacement Selling Sell Cost Price A 1 $87 $85 $120 $15 Normal Profit Margin (Percent of Selling Price 20% B 5 $58 $ 80 $10 10% $60 $35 C 7 $41 $46 $7 10% Required: 1. Using the lower-of-cost-or-market approach (LCM), calculate the ceiling, floor and market of each item. Item A: Ceiling: $. Floor: $ Market $ Item B: Ceiling: Floor: $ Market $ Item C: Ceiling: $. Floor. $ Market $ 2. Calculate the inventory value that should appear on the December 31, 2021 Balance Sheet using: a. Individual item basis: $. b. Total basis: $ Page 2 of 2 Lower-of-Cost-or-Market Example - Continued: 3. Assume a company has a perpetual inventory system and uses an "allowance account to record its inventory adjustments to market. Prepare the adjusting journal entries, if any, to record inventory at market under each of the following approaches: a) Cost-of-goods-sold method Individual items basis: Total basis: b) Loss method Individual items basis: Total basis