Question
Recording a Loss in Applying Lower-of-Cost-or-Net Realizable Rule On December 31, 2020, Hale Inc. estimated the cost of inventory under the FIFO inventory method to
Recording a Loss in Applying Lower-of-Cost-or-Net Realizable Rule
On December 31, 2020, Hale Inc. estimated the cost of inventory under the FIFO inventory method to be $500,000 and the net realizable value of inventory to be $475,000. The company had not previously recorded a holding loss on inventory.
a. Prepare the journal entry to record the holding loss on inventory using an allowance account to reduce inventory and cost of goods sold to adjust equity.
b. Prepare the journal entry to record the holding loss on inventory using an allowance account to reduce inventory and a separate loss account to adjust equity.
| Account Name | Dr. | Cr. | |
|---|---|---|---|
| a. | CashAccounts ReceivableInventoryAllowance to Reduce Inventory to Net Realizable ValueAllowance to Reduce Inventory to Market ValueAccounts PayableBonus PayableEstimated Liability on Purchase CommitmentRetained EarningsRetained EarningsPrior Period AdjustmentSalesCost of Goods SoldCompensation ExpenseHolding Loss on InventoryEstimated Loss on Purchase CommitmentN/A | ||
| CashAccounts ReceivableInventoryAllowance to Reduce Inventory to Net Realizable ValueAllowance to Reduce Inventory to Market ValueAccounts PayableBonus PayableEstimated Liability on Purchase CommitmentRetained EarningsRetained EarningsPrior Period AdjustmentSalesCost of Goods SoldCompensation ExpenseHolding Loss on InventoryEstimated Loss on Purchase CommitmentN/A | |||
| b. | CashAccounts ReceivableInventoryAllowance to Reduce Inventory to Net Realizable ValueAllowance to Reduce Inventory to Market ValueAccounts PayableBonus PayableEstimated Liability on Purchase CommitmentRetained EarningsRetained EarningsPrior Period AdjustmentSalesCost of Goods SoldCompensation ExpenseHolding Loss on InventoryEstimated Loss on Purchase CommitmentN/A | ||
| CashAccounts ReceivableInventoryAllowance to Reduce Inventory to Net Realizable ValueAllowance to Reduce Inventory to Market ValueAccounts PayableBonus PayableEstimated Liability on Purchase CommitmentRetained EarningsRetained EarningsPrior Period AdjustmentSalesCost of Goods SoldCompensation ExpenseHolding Loss on InventoryEstimated Loss on Purchase CommitmentN/A | |||
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Managerial Accounting
Authors: Stacey Whitecotton, Robert Libby, Fred Phillips
3rd edition
77826485, 978-0077722074, 77722078, 978-0077826482
