Kim's Retail had 800 units of inventory on hand at the end of the year. These were recorded at a cost of $15 each using the last-in, first-out (LIFO) method. The current replacement cost is $11 per unit. The selling price charged by Kim's Retail for each finished product is $18. 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

Under the lower-of-cost-or-market rule, inventory should be recorded at the lower of its cost or market value. The cost is $15 per unit, and the market value (replacement cost) is $11 per unit. The difference is $4 per unit for 800 units, resulting in a total adjustment of $3,200. Therefore, Merchandise Inventory will be credited by $3,200.

Kim's Retail Had 800 Units of Inventory on Hand at the End