Lamar Trade Mart has recently had lackluster sales. The rate of inventory turnover has dropped, and the merchandise is gathering dust. At the same time, competition has forced Lamar”s suppliers to lower the prices that Lamar will pay when it replaces its inventory. it is now December 31, 2012, and the current replacement cost of Lamar”s ending inventory is $50,000 below that Lamar paid for the goods, which was $190,000. Before any adjustments at the end of the period, the cost of Goods Sold account has a balance of $820,000.
Requirements:
A. What accounting action should Lamar take in this situation? Lamar should apply the (a). Average-cost method. (b). First in, first out method. (c). Last in, first out method. (d). Lower-of-cost-or market rule. Replacement cost of ending inventory is (a)equal to. (b). less than. (c). More than . Inventory (a). Down (b)Up to current cost.
B. Give any journal entry required.
C. Lamar should report inventory on the balance sheet at what?
D. Lamar should report cost of goods sold on the income statement at what?
E. (a). Consistency Principle (b). Disclosure Principle (c). Materiality Concept (d). Representational Faithfulness is the reason to account for inventory using (a). Average-cost (b). First in, first out. (c). Last in, first out. (d). The lower of cost or market. (a). Conservatism (b). Consistency (c). Disclosure (d). Materiality (e). Representational Faithfulness directs most realistic and transparent amount.