Lynch Ltd has some inventory of wet-suits on hand at 30 June 2022. Costs for making the wet-suits comprise material worth $10 000, labour of $8000 and factory overheads applied on the basis of normal operating capacity amounting to $4000.

On 30 June 2022, Lynch Ltd considers that only one customer, Wayne Ltd, will buy the wet-suits, which are all bright pink with fluorescent green inserts. Wayne Ltd is prepared to buy them all in July 2022 for a total amount of $20 000, provided Lynch Ltd sews a smiley face on the right arm of each suit at a total cost to Lynch Ltd of $2000. Lynch Ltd will also be required to pay for the freight charges to get the inventory to Wayne Ltd. This freight cost will be $1000.

REQUIRED

a. As at 30 June 2022, at what amount should inventory be recorded in the accounts of Lynch Ltd?

b. Assuming inventory was still measured at cost, what accounting entry would be required to adjust the amount recorded for inventory at 30 June 2022?

c. Assuming that in the next financial year (starting 1 July 2022) Wayne Ltd does not acquire the inventory as indicated, but rather, in late September 2022 it becomes apparent that there is actually another customer, Torquay Ltd, who is prepared to purchase the inventory for $40 000 without any modifications to the inventory, then what adjusting entries would need to be made?