Question

A company reports inventory using the lower-of-cost and net realizable value. Below is information related to its year-end inventory:

Inventory	Quantity	Cost	NRV
Unit A	10	$30	$32
Unit B	18	43	40
Unit C	12	23	27
Unit D	15	18	17

   
a. Calculate ending inventory under the lower-of-cost and net realizable value.



b. Prepare the necessary adjusting entry to inventory. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Inventory value
Inventory	Cost per unit	Net Realizable Value	Lower of Cost or NRV	Quantity	Inventory value
Unit A	$            30.00	$ 32.00	$ 30.00	10	$     300.00
Unit B	$            43.00	$ 40.00	$ 40.00	18	$     720.00
Unit C	$            23.00	$ 27.00	$ 23.00	12	$     276.00
Unit D	$            18.00	$ 17.00	$ 17.00	15	$     255.00
TOTAL				55	$ 1,551.00

Requirement a

Ending inventory under the lower-of-cost and net realizable value= $1,551

Requirement b

General Journal	Debit	Credit
Loss on inventory write down	$    69.00
Allowance to reduce inventory to LCM		$    69.00
(Adjusting Entry to write down inventory to Lower of Cost or NRV)

*1620-1551

Allowance to reduce inventory to LCM is a contra asset and shall be shown on balance sheet asset side to reduce value of Inventory.

Value at cost
Inventory	Cost per unit	Quantity
Unit A	$            30.00	10	$        300.00
Unit B	$            43.00	18	$        774.00
Unit C	$            23.00	12	$        276.00
Unit D	$            18.00	15	$        270.00
Total Value at cost			$     1,620.00