Sandra Company had 200 units of inventory on hand at the end of the year. These were recorded at a cost of $12 each using the last-in, first-out (LIFO)method. The current replacement cost is $10 per unit. The selling price charged by Sandra Company for each finished product is $15. In order to record the adjusting entry needed under the lower-of-cost-or-market rule, the Merchandise Inventory will be:

Question

Quizplus · Accepted Answer

The lower-of-cost-or-market rule requires inventory to be recorded at the lower of its historical cost or market value. The market value here is the replacement cost of $10, which is lower than the recorded cost of $12. The difference is $2 per unit for 200 units, totaling $400. Therefore, Merchandise Inventory should be credited by $400 to adjust to the lower market value.

Sandra Company Had 200 Units of Inventory on Hand at the End