Home Stop sells two product categories, furniture and accessories. Information pertaining to its year-end inventory is as follows: Per Unit Inventory, by Product Category Quantity Cost Market Furniture: Chairs 70 $ 29 $ 35 70 77 62 20 88 96 40 64 52 40 26 22 Desks Tables Accessories: Rugs Lamps Required: 1. Determine the carrying value of inventory at year-end, assuming the lower of cost or market (LCM) rule is applied to (a) individual products, (b) product categories, and (c) total inventory. 2. Assuming inventory write-downs are common for Home Stop, record any necessary year-end adjusting entry for each of the LCM applications in requirement 1.

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.