3rd Edition

ISBN: 9780136912644

Author: Elizabeth A. Gordon; Jana S. Raedy; Alexander J. Sannella

Publisher: Pearson Education (US)

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Inventory accounting is that branch of accounting that helps in determining the specific value of assets at different stages of production and development.

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Textbook Question

Chapter 10, Problem 10.13E

Lower of Cost or Market. Printmaster Distributors Company soils laser printers and replacement toner cartridges. Printmaster uses FIFO for inventory costing. It sells two models—black and color laser printers. The black printers and black toner cartridges are in Group 100 and the color printer and color toner cartridges are in Group 200 Printmaster provided the following information regarding inventory at the end of the current year.

Group No	Model No	CRC	No. of Units	SP	Disposal	NPM	Cost
No. 100 Black Laser Printer	LP100	$175	2,000	$210	$20	$35	$170
No. 100 Black Toner	BT100	40	1,500	55	10	16	48
No. 200 Color Laser Printer	CP200	200	3,400	235	25	20	185
No. 200 Color Toner	CT200	65	2,750	145	15	25	55

Definitions:

CRC = Current Replacement Cost

SP = Selling Price

Disposal = Costs of Completion and Disposal

NPM = Normal Profit Margin

Required

a. Conduct a lower-of-cost-or-market test for Printmaster assuming that it uses the total inventory approach for LCM computations
b. Conduct a lower-of-cost-or-market test for Printmaster assuming that it uses the individual-item approach for LCM computations
c. Conduct a lower-of-cost-or-market test for Printmaster assuming that it uses the group-by-group approach for LCM computations
d. Prepare the journal entry needed to adjust Printmaster’s inventory to a lower-of-cost-or-market (LCM) basis assuming that LCM is applied to individual items Printmaster uses the indirect approach to record any adjustments to LCM

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Chapter 10, Problem 10.12E

Chapter 10, Problem 10.14E

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Solution Summary: The author explains the lower-of-cost-or-market test for All-Kinds- of-cases assuming that it uses the total inventory approach for LCM computations.

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