In: Accounting
Janis Company correctly applies the Lower of Cost or Net Realizable Value procedure to its inventory on a per-unit basis.
Information for Janis' seven products at the end of 2020 is as follows:
Product | Quantity | Cost per unit | Selling Price | Cost to complete for sale |
A | 900 | 5.10 | 7.25 | 1.90 |
B | 1200 | 4.30 | 5.40 | 1.20 |
C | 800 | 7.20 | 8.00 | 0.70 |
D | 1000 | 5.75 | 6.20 | 0.55 |
E | 700 | 3.60 | 5.20 | 0.80 |
F | 800 | 4.80 | 6.25 | 1.10 |
G | 900 | 2.90 | 4.00 | 1.45 |
Prepare the journal entry necessary for Janis to to implement the lower of cost or NRV policy to its 12/31/20 inventory, assuming Janis uses the Allowance method and the existing balance in the Allowance is $300 credit.
Product | Quantity | Cost per unit | Selling Price | Cost to complete for sale | NRV | Lower of cost or NRV | Inventory cost as per lower of cost or NRV | Current inventory cost |
A | 900 | 5.1 | 7.25 | 1.9 | 5.35 | 5.1 | 4590 | 4590 |
B | 1200 | 4.3 | 5.4 | 1.2 | 4.2 | 4.2 | 5040 | 5160 |
C | 800 | 7.2 | 8 | 0.7 | 7.3 | 7.2 | 5760 | 5760 |
D | 1000 | 5.75 | 6.2 | 0.55 | 5.65 | 5.65 | 5650 | 5750 |
E | 700 | 3.6 | 5.2 | 0.8 | 4.4 | 3.6 | 2520 | 2520 |
F | 800 | 4.8 | 6.25 | 1.1 | 5.15 | 4.8 | 3840 | 3840 |
G | 900 | 2.9 | 4 | 1.45 | 2.55 | 2.55 | 2295 | 2610 |
29695 | 30230 |
Devaluation of inventory by | 535 |
(30230-29695)
Entry | Dr | Cr | |
Loss due to decline to NRV | 235 | 30230-29695-300 | |
Allowance due to decline to NRV | 235 |
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