Applying LCM on December 31, 20X3, King Company determined that merchandise that

Question

Applying LCM on December 31, 20X3, King Company determined that merchandise that originally cost $46,300 was worth $43,500 at market. Early in 20X4, the market value of King Company's inventory unexpectedly increased to $47,500. If the original credit to write-down the inventory in 20X3 was to the Inventory account, what should King Company do in early 20X4: Make no entry, but disclose the loss in a note accompanying the financial statements. Make no entry and make no disclosure. Make an entry to recognize a $2,800 recovery. Make an entry to recognize a $1,200 gain. Make an entry to recognize a $4,000 recovery

Explanation / Answer

Ans: Make an entry to recognize a $2,800 recovery.

Reason: As per the applicable accounting standard , the inventory will be measured at lower of cost or market valkue. So cost here is 46300 and market value is 47500. So invemntory will be recognised at $ 46300.

Recognised profit= $ 46300- 43500 = $ 2800

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.