68 Applying the lowerofcostormarket rule Assume that a Logan

6-8 Applying the lower-of-cost-or-market rule Assume that a Logan Burger restaurant has the f for hamburger pattics: ollowing perpetual inventory record Cost of Goods Sold Merchandise Inventory on Hand $450 Date Purchases $450 Jul. 9 180 390 $ 270 31 210 cost of the ending merchandise inventory is $435. Make any adjusting entry needed to apply the lower-of-cost-or-market rule. Merchandise inventory would be reported on the balance sheet at what value on July 31? the accountant for the restaurant determines that the current replacement

Solution

There is no requirement of passing any adjustment entry. This is because, inventory should be valued at lower of cost or market value and the cost of the inventory is already lower than market value. The value of the inventory is already being reflected at cost in books of accounts and hence, we will not pass any adjustment entry. Value of the ending merchandise inventory on balance sheet: Cost of the ending merchandise inventory is $ 390. Current replacement cost of the ending merchandise inventory is $ 435. Lower of the above will be value of ending merchandise inventory i.e., $ 390.