TII Industries makes over-voltage protectors, power systems, and electronic products primarily for use in the communications industry. Several years ago, the company reported that it took "a substantial inventory write-down," resulting in a loss for its third quarter ending June 24. The write-down was estimated to be $12 million and stems from customers' changes in product specifications
REQUIRED:
a. Provide the journal entry to record the write-down.
b. Assume that the original cost of the inventory was $52 million and that it was written down to its market value of $40 million. If TII Industries sells it for $48 million cash in the following period, what journal entries would be recorded? Assume that TII uses the perpetual inventory method.
c. Applying the lower-of-cost-or-market rule in this case would cause TII to recognize a loss in the period of the write-down and income in the subsequent period. Does such recognition seem appropriate? Why or why not?