Question & Answer: Preparing the Journal Entry to Record Lower of Cost or Market (LCM) Adjustments [LO 7-…..

Preparing the Journal Entry to Record Lower of Cost or Market (LCM) Adjustments [LO 7-4]

[The following information applies to the questions displayed below.]

During its second and third quarters of fiscal 2014, Blackberry Limited wrote down its BB10 smartphone inventory by approximately $1,700,000,000 because its cost exceeded its market value.

Expert Answer

Loss on Inventory written down (Debit) 1700 Millions

Allowance to reduce inventory to LCM (Credit) 1700 Millions

This entry creates allowance for potential loss which had not yet realised. By writting this entry prudency concept of accountancy is honored by recording the anticipated loss.

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