A company reports merchandise inventory on December 31 at but
LCM applied to items is .

Ask by Barker Fleming. in the United States

Mar 26,2025

Question

A company reports merchandise inventory on December 31 at $$ \$ 250,000 $$ but LCM applied to items is $$ \$ 200,000 $$.

UpStudy AI · Accepted Answer

1. The company’s reported merchandise inventory is $$ \$250,000 $$.
2. The lower of cost or market (LCM) value for these items is $$ \$200,000 $$.
3. Under the LCM rule, inventory must be reported at the lower value. Therefore, the inventory should be reported at $$ \$200,000 $$ on December 31.
4. The difference between the reported amount and the LCM amount is

$$
\$250,000 - \$200,000 = \$50,000.
$$

5. This $$ \$50,000 $$ is the inventory write-down amount. The company must recognize a loss of $$ \$50,000 $$ to adjust the carrying amount of the inventory to $$ \$200,000 $$.

6. The journal entry to record the write-down would be:

$$
\begin{aligned}
\text{Debit: Loss on Inventory Write-down} & \quad \$50,000 \
\text{Credit: Merchandise Inventory} & \quad \$50,000
\end{aligned}
$$

This entry decreases the inventory account to the LCM amount of $$ \$200,000 $$ and recognizes a $$ \$50,000 $$ loss on the income statement.
The company should report the inventory at \$200,000, recognizing a \$50,000 loss by debiting Loss on Inventory Write-down and crediting Merchandise Inventory.

A company reports merchandise inventory on December 31 at but
LCM applied to items is .

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A company reports merchandise inventory on December 31 at but LCM applied to items is .