Question

A local Chevrolet dealership carries the following types of vehicles:

Inventory Items	Quantity	Cost per Unit	NRV per Unit
Vans	2	$23,000	$21,000
Trucks	5	17,200	16,200
2-door sedans	1	12,200	14,200
4-door sedans	6	16,200	19,200
Sports cars	2	33,000	36,000
SUVs	7	28,400	24,000

Because of recent increases in gasoline prices, the car dealership has noticed a reduced demand for its SUVs, vans, and trucks.

1. Compute the total cost of the entire inventory.

2. Determine whether each inventory item would be reported at cost or net realizable value (NRV). Enter the Cost per Unit for the "Lower of Cost or net realizable value" and then multiply the quantity of each inventory item by the appropriate cost or NRV amount and enter it in the Total column.

3. Prepare necessary entry to write down inventory from cost to net realizable value. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

4. The write-down of inventory from cost to net realizable value reduces total assets and increases total expenses, leading to lower net income and lower retained earnings.

Answer 1

Answer
1	Inventory is to be valued at a price cost or net realisible value whichever is low
	asper accounting standerd 2
	Items	Quantity	cost P/U	NRV P/U	value
	Vans	2	23000	21000	42000
	Trucks	5	17200	16200	81000
	2 door Sedans	1	12200	14200	12200
	4 door Sedans	6	16200	19200	97200
	Sports cars	2	33000	36000	66000
	SUVs	7	28400	24000	168000
	Total inventory			$	466400
2	Table showing inventory value
				amount in $
	Items	Quantity	cost P/U	NRV P/U	value	Remarks
	Vans	2	23000	21000	42000	NRV is Low
	Trucks	5	17200	16200	81000	NRV is Low
	2 door Sedans	1	12200	14200	12200	Cost is low
	4 door Sedans	6	16200	19200	97200	Cost is low
	Sports cars	2	33000	36000	66000	Cost is low
	SUVs	7	28400	24000	168000	NRV is Low
	Total inventory			$	466400
3
	No journal entry required to value at NRV,It will automatically reflect in financial reporting
4	Impact of inventory valued at NRV [NRV is less than cost]
	Redused value that is recoded in NRV will reduses assets value .[actual cost incurred on the asset
	willbe higher than NRV]
	Total expenses will increase because actual expenses are higher than asset value.
	It will reduse profit because this lower value of inventory recorded on income side
	of trading account will reduse pgross profit.
	When gross profit redused Net profit also become redused,then retained earnigs become redused