Late in the year, Software City began carrying WordCrafter, a new word processing software program. At December 31, Software City's perpetual inventory records included the following cost layers in its inventory of WordCrafter programs:
- Quan Unit Cost
- Nov 14th 8 400 3200
- Dec 12th 20 310 6200
Available Dec 31st 28 $9400
a. At December 31, Software City takes a physical inventory and finds that all 28 units of Word-Crafter are on hand. However, the current replacement cost (wholesale price) of this product is only $250 per unit.
a-1 Prepare the entries to record this write-down of the inventory to the lower-of-cost-or-market at December 31. (Company policy is to charge LCM adjustments of less than $2,000 to Cost of Goods Sold and larger amounts to a separate loss account.)
a-2 Prepare the entries to the cash sale of 15 WordCrafter programs on January 9, at a retail price of $350 each. Assume that Software City uses the FIFO flow assumption?