The lower-of-cost-or-market value (LCM) rule replaces specific identification, FIFO, LIFO, or weighted-average inventory costing methods
Added by Daniel C.
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The LCM rule is an accounting principle that requires inventory to be valued at the lower of its historical cost or its current market value. Show more…
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Valuing Inventory at Lower-of-Cost-or-Market Gard Inc. has compiled the following information related to its five products. Costs of disposal are estimated to be 10% of the selling price, and gross profit is estimated to be 25% of the selling price. Determine the value of inventory applying the lower-of-cost-or-market rule to each individual inventory item. Note: Round each amount to the nearest dollar. #1 Estimated selling price: $10 Original cost (LIFO): $60 Replacement cost: $120 Inventory at the lower-of-cost-or-market: Answer #2 Estimated selling price: $20 Original cost (LIFO): $80 Replacement cost: $130 Inventory at the lower-of-cost-or-market: Answer #3 Estimated selling price: $30 Original cost (LIFO): $90 Replacement cost: $140 Inventory at the lower-of-cost-or-market: Answer #4 Estimated selling price: $40 Original cost (LIFO): $100 Replacement cost: $150 Inventory at the lower-of-cost-or-market: Answer #5 Estimated selling price: $50 Original cost (LIFO): $110 Replacement cost: $160 Inventory at the lower-of-cost-or-market: Answer
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After companies apply one of the four costing methods, inventory is reviewed to ensure it is reported at the Market value Historical cost Lower of cost or market replacement cost retail value
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The conventional retail inventory method yields results that are essentially the same as those yielded by the lower-of-cost-or-market method. Explain. Prepare an illustration of how the retail inventory method reduces inventory to market.
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Horngren’s Cost Accounting
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