Question

On April 1, Robert LLC purchased two units of inventory, A and B. The cost of unit A was $655, and the cost of unit B was $555. On April 30, Robert LLC had not sold the inventory. The market value of unit A was now $670 while the market value of unit B was $470. The adjustment associated with the lower-of-cost-or-market method on April 30 will be:

Cost of Goods Sold 70
Inventory 70
Inventory 70
Cost of Goods Sold 70
Cost of Goods Sold 85
Inventory 85
Inventory 85
Cost of Goods Sold 85

Answer 1

Cost of Goods Sold 85

Inventory 85

Step-by-step explanation:

According to Generally Accepted Accounting Principles (GAAP), the inventory should be recorded at cost or market value whichever is lower.

So, in this question, we consider the cost and market value of unit B not unit A as it has already lower values

Cost of unit B = $555

And, the market value of unit B = $470

So, the difference is $85 ($555 - $470) would be adjusted

So, the adjusting entry would be

Cost of Goods Sold A/c Dr $85

To Inventory $85

(Being the inventory is adjusted)