Lower-of-cost-or-market. At 12/31/06, the end of Smith Company’s first year of business, inventory was $4,100 and $2,800 at cost and at market,…

Lower-of-cost-or-market. At 12/31/06, the end of Smith Company’s first year of business, inventory was $4,100 and $2,800 at cost and at market, respectively.Following is data relative to the 12/31/07 inventory of Smith:Original                                    Net            Net Realizable    AppropriateCostReplacementRealizable               Value Less                      Inventory ItemPer Unit    Cost      Value    Normal Profit        ValueA$ .65$ .45B.45.40C.70.75D.75.65E.90.85Selling price is $1.00/unit for all items. Disposal costs amount to 10% of selling price and a “normal” profit is 30% of selling price. There are 1,000 units of each item in the 12/31/07 inventory.Instructions(a)Prepare the entry at 12/31/06 necessary to implement the lower-of-cost-or-market procedure assuming Smith uses a contra account for its balance sheet.(b)Complete the last three columns in the 12/31/07 schedule above based upon the lower-of-cost-or-market rules.(c)Prepare the entry(ies) necessary at 12/31/07 based on the data above.(d)How are inventory losses disclosed on the income statement?