g Home Stop sells two product categories, furniture and accessories. Information pertaining to its 2021 year-end inventory is as follows: Inventory, by Product Category Quantity Per Unit Cost Market Furniture: Chairs 50 $ 28 $ 34 Desks 80 76 61 Tables 70 87 95 Accessories: Rugs 70 63 51 Lamps 30 25 21 Required: 1. Determine the carrying value of inventory at year-end, assuming the lower of cost or market (LCM) rule is applied to (a) individual products, (b) product categories, and (c) total inventory. 2. Assuming inventory write-downs are common for Home Stop, record any necessary year-end adjustment amount for each of the LCM applications in requirement 1.

Home Stop

1. The carrying value of inventory at year-end, assuming the lower of cost or market (LCM) rule is applied to:

(a) individual products = $16,570

(b) product categories = $17,430

(c) total inventory = $17,430

2. Adjusting Journal Entries:

a) by individual products:

Debit Cost of goods sold $2,160

Credit Inventory $2,160

To record the inventory write-down.

b) by category:

Debit Cost of goods sold $1,300

Credit Inventory $1,300

To record the inventory write-down.

c) by total inventory:

Debit Cost of goods sold $1,300

Credit Inventory $1,300

To record the inventory write-down.

Explanation:

a) Data and Calculations:

Inventory,

by Product Category   Quantity    Per Unit Cost  Market     LCM

Furniture:

Chairs                              50               $ 28             $ 34    $1,400 ($28 * 50)

Desks                              80                   76                 61    $4,880 ($61 * 80)

Tables                             70                   87                 95   $6,090 ($87 * 70)

Accessories:

Rugs                               70                   63                  51   $3,570 ($51 * 70)

Lamps                            30                   25                  21      $630 ($21 * 30)

Total value of inventory (by individual products) =         $16,570

by Category:

Furniture:

at Cost  (50 * $28 + 80 * $76 + 70 * $87) = $13,570

at Market value (50 * $34 + 80 * $61 + 70 * $95) = $13,230

Accessories:

at Cost (70 * $63 + 30 * $25) = $5,160

at Market value (70 * $51 + 30 * $21) = $4,200

Total inventory value = $17,430 ($13,230 + $4,200)

by total inventory:

Furniture: at Cost  (50 * $28 + 80 * $76 + 70 * $87) = $13,570

Accessories: at Cost (70 * $63 + 30 * $25) = $5,160

Total = $18,730 ($13,570 + $5,160)

Furniture: at Market value (50 * $34 + 80 * $61 + 70 * $95) = $13,230

Accessories: at Market value (70 * $51 + 30 * $21) = $4,200

Total inventory value = $17,430 ($13,230 + $4,200)

Market value is chosen as the total is less than the total cost.

The cost of inventory = $18,730

LCM by individual products = 16,570

Write-down = $2,160

The cost of inventory = $18,730

LCM by category =        $17,430

Write-down = $1,300

The cost of inventory = $18,730

LCM by total inventory = 17,430

Write-down = $1,300