Question

A physical inventory of Office Necessities Company taken at December 31 reveals the following.

Items	Units	Cost per unit	Market per unit
Office furniture
Desks	\(536	\)261	$305
Chairs	395	227	256
Mats	687	49	43
Bookshelves	421	93	82
Filling Cabinets
Two-drawer	114	81	70
Four-drawer	298	135	122
Lateral	75	104	118
Office equipment
Projectors	370	168	200
Copier	475	317	288
Phones	302	125	117

Required

2. If the market amount is less than the recorded cost of the inventory, then record the LCM adjustment to the Merchandise Inventory account.

Short answer

The cost of goods sold will be increased by$30,072.

Step-by-step solution

Definition of Historical Cost

The cost of all the business entity assets recorded in the balance sheet is known as historical cost. It is the actual cost at which the purchase was acquired.

Journal entry for recording LCM adjustment

Date	Accounts and Explanation	Debit $	Credit $
Dec 31	Cost of goods sold	$30,072
	Merchandise inventory		$30,072
	(To record the adjustment to the inventory)

Working note:

Product	Units	Per unit	Total
Office furniture
Desks	536	$261	$139,896
Chairs	395	227	89,665
Mats	687	49	33,663
Bookshelves	421	93	39,153
Filling Cabinets
Two-drawer	114	81	9,234
Four-drawer	298	135	40,230
Lateral	75	104	7,800
Office equipment
Projectors	370	168	62,160
Copier	475	317	150,575
Phones	302	125	37,750
Total cost			$610,126

Amount of adjustment:

Particular	Amount $
Inventory at cost	$610,126
Less: inventory lower in cost or market	(580,054)
Adjustment	$30,072