Lower of Cost or Market
Response to the following problem:
Prepare the necessary journal entries to account for the purchases and year-end adjustments of the inventory of Payson Manufacturing Company. All purchases are made on account. Payson uses the periodic inventory method.
1. Purchased 50 standard widgets for $8 each to sell at $14 per unit.
2. Purchased 15 deluxe widgets at $20 each to sell for $30 per unit.
3. At the end of the year, the standard widgets could be purchased for $9 and are selling for $15.
4. At the end of the year, the deluxe widgets could be purchased for $10 and are selling for $16 per unit. Selling costs are $4 per unit, and normal profit is $6 per unit. Inventory is 15 units.
5. At the end of the second year, standard widgets could be purchased for $6 and are selling for $8. Selling costs are $1 per widget, and normal profit is $2 per widget. Inventory is 50 units.
6. At the end of the second year, the deluxe widgets could be purchased for $9 and are selling for $20. Selling costs and normal profit remain as in (4). Inventory is 15 units.