Intermediate Accounting
3rd Edition
ISBN: 9780136912644
Author: Elizabeth A. Gordon; Jana S. Raedy; Alexander J. Sannella
Publisher: Pearson Education (US)
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Chapter 10, Problem 10.9P
Lower of Cost or Market. O'Sullivan Corporation provided the following information regarding its ending inventory for the current year O’Sullivan manufactures three types of athletic shoes Selling costs are 10% of the selling price The company values its ending inventory at the lower of LIFO cost or market.
There are 1,000 units of each product in inventory.
| Product | LIFO Cost | Current Replacement Cost |
Selling Price | Normal Profit Margin |
| Assurant | $210 | $225 | $260 | 30% |
| Biglow | 250 | 220 | 280 | 20% |
| Cartata | 170 | 140 | 200 | 15% |
*As a percentage of selling price.
Required
- a. Compute the amount of write-down, if any, on both an individual and a total inventory basis.
- b. Prepare any
journal entries necessary to reflect the inventory at lower of cost or market assuming that O’Sullivan uses the indirect method. - c. Repeat requirement (b) assuming that O’Sullivan uses the direct method to record any required write-down to lower of cost or market.
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