A company like Golf USA that sells golf-related inventory typically will have inventory items such as golf clothing and golf equipment. As technology advances the design and performance of the next generation of drivers, the older models become less marketable and therefore decline in value. Suppose that in 2012, Ping (a manufacturer of golf clubs) introduces the MegaDriver II, the new and improved version of the MegaDriver. Below are amounts related to Golf USA's inventory at the end of 2012.
Inventory Quantity Cost Market
Shirts..............25.............$ 50.......$ 60
MegaDriver........5..............260........200
MegaDriver II...20..............300........320
Required:
1. Calculate ending inventory under lower-of-cost-or-market.
2. Record any necessary adjustment to inventory.
3. Explain the impact of the adjustment in the financial statements.