Wonkie Company's ending inventory (at cost)was $75,000. The market value of the ending inventory was $65,000. How will this affect the reported ending inventory and cost of goods sold?

Question

Quizplus · Accepted Answer

When the market value of the ending inventory is less than the cost, the lower of cost or market (LCM) rule is applied. This means that the ending inventory is reported at the lower of its cost ($75,000) or market value ($65,000). As a result, the ending inventory will be decreased by $10,000 ($75,000 - $65,000), and the cost of goods sold will be increased by the same amount. This is because the difference between the cost and market value represents a loss that needs to be recognized in the income statement.

Wonkie Company's Ending Inventory (At Cost)was $75,000