Question
In: Accounting
Explains the (a) lower of cost or net realizable value (LCNRV) approach and the (b) lower...
Explains the (a) lower of cost or net realizable value (LCNRV) approach and the (b) lower of cost or market (LCM) approach to valuing inventory.
Solutions
Expert Solution
| LCNRV is a method in which at year end compare cost and net realizable value,whichever is lower is taken. | |||||
| LCM is a method where market price is equal to replacement cost limited to the ceiling and floor. | |||||
| Example: | |||||
| LCNRV Method | |||||
| ABC Company Sells Four Products | |||||
| Cost | Net Realizable Value | LCNRV | |||
| Product A | $ 2,000.00 | $ 2,100.00 | $ 2,000.00 | ||
| Product B | $ 5,000.00 | $ 4,950.00 | $ 4,950.00 | ||
| Product C | $ 4,400.00 | $ 4,500.00 | $ 4,400.00 | ||
| Product D | $ 4,200.00 | $ 3,830.00 | $ 3,830.00 | ||
| LCM Method | |||||
| ABC Company Sells Four Products | |||||
| Cost | Replacement cost | Sales Price | Net Realizable Value | Normal Profit | |
| Product A | $ 70,000.00 | $ 62,500.00 | $ 64,000.00 | 56000 | 5100 |
| Product B | $ 86,000.00 | $ 79,400.00 | $ 94,000.00 | 84800 | 7400 |
| Product C | $ 1,12,000.00 | $ 1,24,000.00 | $ 1,86,400.00 | 168300 | 18500 |
| Product D | $ 1,40,000.00 | $ 1,26,000.00 | $ 1,54,800.00 | 140000 | 15400 |
| Cost | Replacement cost | NRV Ceiling | NRV less Normal Profit | LCM | |
| Product A | $ 70,000.00 | $ 62,500.00 | $ 56,000.00 | $ 50,900.00 | $ 56,000.00 |
| Product B | $ 86,000.00 | $ 79,400.00 | $ 84,800.00 | $ 77,400.00 | $ 79,400.00 |
| Product C | $ 1,12,000.00 | $ 1,24,000.00 | $ 1,68,300.00 | $ 1,49,800.00 | $ 1,12,000.00 |
| Product D | $ 1,40,000.00 | $ 1,26,000.00 | $ 1,40,000.00 | $ 1,24,600.00 | $ 1,40,000.00 |
ekkarill92 answered 2 years agoRelated Solutions
Explain the (a) lower of cost or net realizable value (LCNRV) approach and the (b) lower...
Explain the (a) lower of cost or net realizable value (LCNRV)
approach and the (b) lower of cost or market (LCM) approach to
valuing inventory. please answer in your own words, do not use the
outside resources
1. Which statement concerning lower-of-cost-or-net-realizable-value (LCNRV) is incorrect? LCNRV is an example of a company choosing...
1.
Which statement concerning lower-of-cost-or-net-realizable-value
(LCNRV) is incorrect?
LCNRV is an example of a company choosing the accounting method
that will be least likely to overstate assets and income.
The LCNRV basis is justified because of a decline in the selling
price of the inventory item.
LCNRV is applied after one of the cost flow assumptions has been
applied.
Under the LCNRV basis, market does not apply because assets are
always recorded and maintained at cost.
2.
Ayayai Corp. sells...
Why are inventories valued at the lower-of-cost-or-net realizable value (LCNRV)? What are the arguments against the...
Why are inventories valued at the lower-of-cost-or-net
realizable value (LCNRV)? What are the arguments against the use of
the LCNRV method of valuing inventories? in 300 words.?
Entity C developed the following information about its inventories in applying the lower-of-cost-or-net-realizable-value (LCNRV item-by-item) basis...
Entity C developed the following information about its
inventories in applying the lower-of-cost-or-net-realizable-value
(LCNRV item-by-item) basis in valuing inventories:
Product
Cost NRV
A $120,000 $114,000
B
80,000 76,000
C
160,000
162,000
After Entity D applies the LCNRV rule, the value of the inventory
reported on the balance sheet would be
$350,000.
$360,000.
$362,000
$352,000.
Explain how net realizable value (NRV) is calculated and how the lower of cost of net...
Explain how net realizable value (NRV) is calculated and how the
lower of cost of net realizable value rule (LCNRV) is applied to
valuing inventory.
a)
Definition of net realizable value
b)
Alternative methods for applying the rule
c)
Describe the two alternative methods for recording adjustments
under the LCNRV method
d)
Assume that a firm has an ending inventory valued at cost of
$100,000 and at NRV at $85,000, record the journal entries for each
of the two recording...
. LO 11 – Lower of cost and net realizable value (11 marks) The controller of...
. LO 11 – Lower of cost and net realizable value The
controller of Utah Corp. has provided you with the following
information related to its inventory: Date Cost Net Realizable
Value Dec. 31, 2019 $457,000 $410,000 Dec. 31, 2020 615,000 555,000
Dec. 31, 2021 389,000 355,000 Dec. 31, 2022 450,000 465,000 Utah
uses a periodic inventory system. Assume that 2019 was Utah’s first
year of operations. Required: Prepare the journal entries that are
required at December 31, 2020 and...
Home furnishings reports inventory using the lower of cost and net realizable value (NRV).
Home furnishings reports inventory using the lower of cost and net realizable value (NRV). Below is information related to its year-end inventory.
Required:
1. Calculate the total recorded cost of ending inventory before any adjustments.
2. Calculate ending inventory using the lower of cost and net realizable value.
3. Record any necessary adjustment to inventory.
4. Explain the impact of the adjustment in the financial statements.
Explain thoroughly why is the lower of cost and net realizable value rule required by accounting...
Explain thoroughly why is the lower of cost and net realizable
value rule required by accounting standards
A company reports inventory using the lower of cost and net realizable value. See the following...
A company reports inventory using the lower of cost and net
realizable value. See the following information related to its
year-end inventory:
Inventory
Quantity
Cost
NRV
Item A
150
$
29
$
34
Item B
50
34
24
a. Calculate ending inventory for the company
under the lower of cost and net realizable value.
b. Record the necessary adjusting entry to
inventory.
Lower of cost or net realizable value Data related to the inventories of Key West Water...
Lower of cost or net realizable value
Data related to the inventories of Key West Water Sports is
presented below:
Jet Skis
Kayaks
Paddle Boards
Scuba Gear
Selling price
$180,000
$140,000
$120,000
$65,000
Cost
128,000
133,000
90,000
55,000
Replacement cost
120,000
130,000
110,000
48,000
Sales commission
18,000
14,000
12,000
12,000
Normal Profit
10,000
7,000
6,000
3,000
Required:
Compute the Lower of Cost or Net Realizable Value for each
inventory category.
Gross profit method
On July 5, 2021, a fire destroyed...
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