Lower of Cost or Market Journal Entries
The company started business at the beginning of Year 1. The company applies the lower of cost or market (LCM) rule to its inventory as a whole. Inventory cost and market values as of the end of Year 1 and Year 2 were as follows:
|
Cost |
Market |
|
|
Year 1 |
$1,000 |
$800 |
|
Year 2 |
1,700 |
1,650 |
The market value numbers already include consideration of the replacement cost, the ceiling, and the floor. Make the journal entry necessary to record the LCM adjustment at the end of (1) Year 1 and (2) Year 2. The company uses an allowance account for any LCM adjustments.