Question

At 12/31/17, the end of Jenner Company's first year of business, inventory was $6,100 and $5,100 at cost and at market, respectively.Following is data relative to the 12/31/18 inventory of Jenner:Item Original CostPer Unit ReplacementCostA $ .65 $ .45 B .45 .40 C .70 .75 D .75 .65 E .90 .85 Selling price is $1.00/unit for all items. Disposal costs amount to 10% of selling price and a "normal" profit is 30% of selling price. There are 1,500 units of each item in the 12/31/18 inventory.Prepare the entry at 12/31/17 necessary to implement the lower-of-cost-or-market procedure assuming Jenner uses a contra account for its balance sheet. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Answer 1

Answer  and Explanation:



a. Dr Loss Due to decline of inventory to Market $1000    

Cr Allowance to Reduce Inventory to Market  $1000  

b. Items, Original cost per unit, Replacement cost, Net Realizable value, Net realizable value less normal profit, Appropriate Inventory,

A $.65 $.45 $.90 $.60 $.60

B $.45 $.40 $.90 $.60 $.45

C $.70 $.75   $.90 $.60 $.70

D $.75         $.65 $.90 $.60 $.65

E $.90 $.85 $.90 $.60 $.85

 $3.45(Total original cost per unit ) 

   

     

$3.25(Total appropriate inventory)

Therefore:

$3.25*1500 = $4,875    

c .

Dr Allowance to reduce inventory to market $1000    

Cr Cost of good sold  $1000  

Dr Loss due to decline of inventory to market $300    

Cr Allowance to reduce inventory to market  $300  

Cost of inventory at 12/31/21   will  be $4875    

d. Inventory losses  can be disclosed separately  on the income statement  and can as well be shown as part of cost of goods  been sold.