Burton Supply Uses the Perpetual Inventory Method

question 42

Essay

Burton Supply uses the perpetual inventory method.At the end of the year Burton Supply had the following items in inventory.
Required:

a)Determine the amount of inventory Burton Supply is showing on its books before any adjustment.
b)Determine the amount of ending inventory using lower of cost or market applied to each individual item.
c)Prepare the journal entry necessary to adjust inventory.
d)Determine the amount of ending inventory using lower of cost or market applied to total inventory in aggregate.
e)Which method (individual items or aggregate)produces the smallest amount of total assets?

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Definitions:

Conservatism

An accounting principle that advises caution, directing accountants to choose methods and estimates that are least likely to overstate assets and income.

Fair Value Accounting

An accounting approach that measures and reports assets and liabilities at their estimated market prices.

Financial Crises

A situation where the value of financial institutions or assets drops significantly, often characterized by panicked selling and loss of confidence in the financial system.

Accounting Standards Codification

The collection and integration of the authoritative accounting standards for U.S. GAAP.