Hiatt Hurricane Preparedness Corporation accounts for its...

Hiatt Hurricane Preparedness Corporation accounts for its inventory using LIFO and is applies the LCM rule. The company has compiled the following information regarding the cost, replacement cost, net realizable value (NRV), and NRV less a normal profit margin for the company's inventory items: Designated Market Value Inventory Item Cost Basic Kits $40,000 $52,000 Deluxe Kits 50,000 45,000 Gold Standard Kits 25,000 20,000 If Hiatt applies LCM to the individual items in its inventory and uses the Loss method to adjust cost to LCM, what adjusting entry will the company make at December 31, 20X1? Debit Inventory Loss, $5,000; Credit Inventory, $5,000 Debit Cost of Goods Sold, $5,000; Credit Inventory, $5,000 Debit Inventory Loss, $2,000; Credit Inventory, $2,000 Debit Inventory, $2,000; Credit Inventory Loss, $2,000

Transcript

00:01 So first we need to calculate the lower of cost or market lcm or net realizable value in our v for each item in the inventory so you've got your item a which is purchase cost is seven thousand two hundred twenty and replacement cost is 480 per unit so the total replacement cost is 480 times 1900 total replacement cost would be 480 times 1900 which equals 19 ,000 120 and lcm nrv is the lower of the two which is 72 20 item b your purchase cost is 3300 and replacement cost is 280 a unit so your total replacement cost is 280 times 825 which equals 23 10 and the lcm nrv is the lower of the two which is 23 10 so they're actually equal see your purchase cost is 12 ,000 40 replacement cost is a dollar for a unit so your total replacement cost would be a dollar 40 a unit times 4300 which equals 6020 and they'll see him such nrv is the lower of the two which is 6020 let's equal item d purchase cost is eleven thousand twenty replacement cost is 380 so you get your trc equals? 380 times 1900 equals seven thousand two hundred twenty and the lcm nrv is also seven thousand two hundred twenty and the total lcm nrv when you add them all up 22 ,000 770 and so now we can restate the income statement so sales revenue is a hundred fifty six thousand cost of goods sold is beginning inventory nineteen thousand purchases is ninety nine thousand goods available for sale is a hundred eighteen thousand ending inventory is twenty two thousand seven hundred seventy cost of goods sold is ninety five thousand two hundred thirty times a hundred eighteen thousand minus twenty two seven seven seventy gross profit is sixty thousand seven hundred seventy times a hundred fifty six thousand minus ninety five thousand two hundred thirty so we've done cost of goods sold gross profit operating expenses at thirty five thousand income is twenty five thousand seven hundred seventy times sixty thousand seven hundred seventy minus thirty five thousand income tax expense thirty percent is seven seven thousand seven hundred thirty one times twenty five thousand seven hundred seventy times thirty percent net income is eighteen thousand thirty nine times twenty five thousand seven hundred seventy minus seven thousand seven hundred thirty one so you're seeing how to calculate all these and then comparing the oh, yeah, there's also income operation so comparing the lcm nrv effect on each amount that was changed in the preliminary income statement we see that the ending inventory decreased by ten thousand eight hundred ten times three hundred thousand five hundred eighty minus 22 ,000 seven hundred seventy and the cost of goods sold increased by ten thousand eight hundred ten times ninety five thousand two hundred thirty minus eight...

Question

Please give Ace some feedback