It is December 31, the end of the year, and the controller of Corporation is applying the lower-of-cost-or-market (LCM) rule to inventories. Before any year-end adjustments, reports the following data: Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $425,000 Historical cost of ending inventory, as determined by a physical count. . . . . . . . . . . . . 55,000 determines that the current replacement cost of ending inventory is . Show what should report for ending inventory and for cost of goods sold. Identify the financial statement where each item appears.

Question

14-01-2021
Business

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It is December 31, the end of the year, and the controller of Corporation is applying the lower-of-cost-or-market (LCM) rule to inventories. Before any year-end adjustments, reports the following data: Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $425,000 Historical cost of ending inventory, as determined by a physical count. . . . . . . . . . . . . 55,000 determines that the current replacement cost of ending inventory is . Show what should report for ending inventory and for cost of goods sold. Identify the financial statement where each item appears.

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Zviko Zviko · Answer 1 · 2021-01-15T03:04:48+01:00

Answer:

Inventory will be reported on the Statement of Financial Position / Balance Sheet at $43,000.

Cost of Goods Sold will be reported on the Income Statement / Statement of Profit and Loss at $455,000

Explanation:

Hie, I have attached the full question as images below

When applying the lower-of-cost-or-market (LCM) rule to inventories, inventories are valued at the amount whichever is lower between the Historical Cost of Inventory and the Net Realizable Value of Inventory (Estimated amount after sale).

Where,

Historical Cost of Inventory = $58,000

Net Realizable Value of Inventory = $43,000

Therefore

Inventories will be valued at $43,000 which is lower. The write down of Inventory of $15,000 ($58,000 - $43,000) will increase the Cost of Goods Sold

Thus, the new Cost of Goods Sold will be $455,000 ($440,000 + $15,000)