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
