Question

In: Accounting

Cost per unit : $3.63 replacement cost : $3.34 Estimated selling price: $4.80 Cost of completion...

Cost per unit : $3.63
replacement cost : $3.34
Estimated selling price: $4.80
Cost of completion and disposal: $1.94
Normal profit margin (%) of selling price: 18%

Estimated Selling price - Costs of completion and disposal = NRV
$4.80 - $1.94 = $3.86

Sale price of inventory x Profit Margin (%)

$4.80 x 18% = 0.864

NRV - the Normal Profit Margin

$3.86 - 0.864 = 1.996

Replacement cost = $3.34

Question: What would be the journal entry for December 31 2017 and why?

Solutions

Expert Solution

Journal Entry
Accounts name Debit Credit
Cost of Goods Sold 0.77
    Inventory 0.77
(To recognize inventory at lower of cost or NRV.)
Cost per unit 3.63
NRV (Selling PRICE - Disposal) 2.86
Lower of above two 2.86
Difference f inventory value to be written off 0.77
Cost Replacement Cost NRV = Selling Price - Disposal NRV-NP Market Inventory value(Lower of cost or market )
3.63 3.34 2.86 1.996 2.86 2.86
Note 2: Market price is same as replacement cost, but if replacement cost is more than NRV then NRV will be the market value, Also market price should not be less then NRV-NP.

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