Problem 5

At 12/31/12, the end of Jenner Company's first year of business, inventory was $4,100 and $2,800 at cost and at market, respectively.

Following is data relative to the 12/31/13 inventory of Jenner:

Original Net Net Realizable Appropriate

Cost Replacement Realizable Value Less Inventory

Item Per Unit Cost Value Normal Profit Value

A $ .65 $ .45

B .45 .40

C .70 .75

D .75 .65

E .90 .85

Selling price is $1.00/unit for all items. Disposal costs amount to 10% of selling price and a "normal" profit is 30% of selling price. There are 1,000 units of each item in the 12/31/13 inventory.

Instructions

(a) Prepare the entry at 12/31/12 necessary to implement the lower-of-cost-or-market procedure assuming Jenner uses a contra account for its balance sheet.

(b) Complete the last three columns in the 12/31/13 schedule above based upon the lower-of-cost-or-market rules.

(c) Prepare the entry(ies) necessary at 12/31/13 based on the data above.

(d) How are inventory losses disclosed on the income statement?