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Question 20 At 12/31/20, the end of Sunland Company's first year of business, inventory was $7,100 and $4,850 at cost and at market, respectively. Following is data relative to the 12/31/21 inventory of Jenner: Item Original Cost Per Unit Replacement Cost A $0.80 $0.45 B 0.55 0.50 C 0.75 0.80 D 0.85 0.75 E 0.85 0.80 Selling price is $1.00/unit for all items. Disposal costs amount to 10% of selling price and a "normal" profit is 30% of selling price. There are 1,300 units of each item in the 12/31/21 inventory.

Prepare the entry at 12/31/20 necessary to implement the lower-of-cost-or-market procedure assuming Sunland uses a contra account for its balance sheet. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit 12/31/20 Cost of Goods Sold Profit Due to Market Decline of Inventory Loss Due to Decline of Inventory to Market Recovery Due to Market Incline of Inventory Allowance to Reduce Inventory to Market Loss Due to Decline of Inventory to Market Cost of Goods Sold Profit Due to Market Decline of Inventory Recovery Due to Market Incline of Inventory Allowance to Reduce Inventory to Market

Complete the last three columns in the 12/31/21 schedule below based upon the lower-of-cost-or-market rules. Item Original Cost Per Unit Replacement Cost Net Realizable Value Net Realizable Value Less Normal Profit Appropriate Inventory Value A $0.80 $0.45 $ $ $ B 0.55 0.50 C 0.75 0.80 D 0.85 0.75 E 0.85 0.80 $ $

Prepare the entries necessary at 12/31/21 based on the data above. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit 12/31/21 Cost of Goods Sold Allowance to Reduce Inventory to Market Loss Due to Decline of Inventory to Market Recovery Due to Market Incline of Inventory Profit Due to Market Decline of Inventory Cost of Goods Sold Allowance to Reduce Inventory to Market Loss Due to Decline of Inventory to Market Profit Due to Market Decline of Inventory Recovery Due to Market Incline of Inventory (To record cost of goods sold) 12/31/21 Recovery Due to Market Incline of Inventory Allowance to Reduce Inventory to Market Cost of Goods Sold Profit Due to Market Decline of Inventory Loss Due to Decline of Inventory to Market Recovery Due to Market Incline of Inventory Loss Due to Decline of Inventory to Market Cost of Goods Sold Allowance to Reduce Inventory to Market Profit Due to Market Decline of Inventory (To record profit/ loss)

How are inventory losses disclosed on the income statement? Inventory losses can be disclosed separately below gross profit in administration expensesgross profit in operating expensesgross profit in selling expenses or they can be shown as part of cost of goods soldcost of goods manufacturedcost of goods available for sale .

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