Question

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

Item	Units	Cost per unit	Market per unit
Car audio equipment
Speaker	345	\(90	\)98
Stereos	260	111	100
Amplifiers	326	86	95
Subwoofers	204	52	41
Security equipment
Alarms	480	150	125
Locks	291	93	84
Cameras	212	310	322
Binocular equipment
Tripods	185	70	84
Stabilizers	170	97	105

Required

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 $19,723.

Step-by-step solution

Step-By-Step SolutionStep 1: Definition of Merchandise Inventory

The goods possessed by the business unit with the primary purpose of reselling them and generating profit is known as merchandise inventory.

Journal entry for recording LCM adjustment

Date	Accounts and Explanation	Debit $	Credit $
Dec 31	Cost of goods sold	$19,723
	Merchandise inventory		$19,723
	(To record the adjustment to the inventory)

Working note:

Item	Units	X	Cost	=	Total cost
Car audio equipment
Speaker	345	X	$90	=	$31,050
Stereos	260	X	111	=	28,860
Amplifiers	326	X	86	=	28,036
Subwoofers	204	X	52	=	10,608
Security equipment
Alarms	480	X	150	=	72,000
Locks	291	X	93	=	27,063
Cameras	212	X	310	=	65,720
Binocular equipment
Tripods	185	X	70	=	12,950
Stabilizers	170	X	97	=	16,490
Total					292,777

Amount of adjustment:

Particular	Amount $
Inventory at cost	$292,777
Less: inventory lower of cost or market	(273,054)
Adjustment	$19,723