Answered: Sage Co. follows the practice of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Sage Co. follows the practice of valuing its inventory at the lower-of-cost-or-market. The following information is available from the company’s inventory records as of December 31, 2020.

Item	Quantity	Unit Cost	Replacement Cost/Unit	Estimated Selling Price/Unit		Completion & Disposal Cost/Unit	Normal Profit Margin/Unit
A	1,600	$8.33	$9.32		$11.66		$1.67	$2.00
B	1,300	9.10	8.77		10.43		1.00	1.33
C	1,500	6.22	5.99		7.99		1.28	0.67
D	1,500	4.22	4.66		6.99		0.89	1.67
E	1,900	7.10	6.99		7.44		0.78	1.11

Greg Forda is an accounting clerk in the accounting department of Sage Co., and he cannot understand why the market value keeps changing from replacement cost to net realizable value to something that he cannot even figure out. Greg is very confused, and he is the one who records inventory purchases and calculates ending inventory. You are the manager of the department and an accountant.

Calculate the lower-of-cost-or-market using the individual-item approach.

		Lower-of-Cost-or-Market (Per unit basis)
Item A		$
Item B		$
Item C		$
Item D		$
Item E		$

Show the journal entry he will need to make in order to write down the ending inventory from cost to market. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
Cost of Goods sold Method:


The Loss method:

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