| 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: |
| Purchase Date | Quantity | Unit Cost | Total Cost | ||
| Nov. 14 | 8 | $ | 400 | $ | 3,200 |
| Dec. 12 | 20 | 310 | 6,200 | ||
| | | | |||
| Total available for sale at Dec. 31 | 28 | $ | 9,400 | ||
| | | | |||
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| 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 $2,000 to Cost of Goods Sold and larger amounts to a separate loss account.) (Omit the “$” sign in your response.) debit credit
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b.
Now assume that the current replacement cost of the WordCrafter programs is $405 each. A physical inventory finds only 25 of these programs on hand at December 31. (For this part, return to the original information and ignore what you did in part a.)
b 1
Prepare the journal entry to record the shrinkage loss assuming that Software City uses the FIFO flow assumption. (Omit the “$” sign in your response.)
debit
credit
b 2
Prepare the journal entry to record the shrinkage loss assuming that Software City uses the LIFO flow assumption. (Omit the “$” sign in your response.)
debit
credit
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