Question

Decker Company has five products in its inventory. Information about the December 31, 2021, inventory follows.

Product		Quantity		Unit Cost				Unit Selling Price
A		1,450		$	19			$	24
B		1,300			23				28
C		1,100			4				10
D		700			9				8
E		1,100			24				22

The cost to sell for each product consists of a 15 percent sales commission.

Required:
1. Determine the carrying value of inventory at December 31, 2021, assuming the lower of cost or net realizable value (LCNRV) rule is applied to individual products.
2. Determine the carrying value of inventory at December 31, 2021, assuming the LCNRV rule is applied to the entire inventory.
3. Assuming inventory write-downs are common for Decker, record any necessary year-end adjusting entry based on the amount calculated in requirement 2.

Answer 1

Solution 1:

Inventory at lower of cost or market (applied to individual items)
Product	Quantity	Cost per unit	NRV per unit (Units selling Price*85%)	Cost	NRV	LCNRV
A	1450	$19.00	$20.40	$27,550.00	$29,580.00	$27,550.00
B	1300	$23.00	$23.80	$29,900.00	$30,940.00	$29,900.00
C	1100	$4.00	$8.50	$4,400.00	$9,350.00	$4,400.00
D	700	$9.00	$6.80	$6,300.00	$4,760.00	$4,760.00
E	1100	$24.00	$18.70	$26,400.00	$20,570.00	$20,570.00
Total				$94,550.00	$95,200.00	$87,180.00
Carrying value of Inventory at December 31, 2021 = $87,180

Solution 2:

Inventory at lower of cost or market (applied to total inventory)
Product	Quantity	Cost per unit	NRV per unit (Units selling Price*85%)	Cost	NRV	LCNRV
A	1450	$19.00	$20.40	$27,550.00	$29,580.00
B	1300	$23.00	$23.80	$29,900.00	$30,940.00
C	1100	$4.00	$8.50	$4,400.00	$9,350.00
D	700	$9.00	$6.80	$6,300.00	$4,760.00
E	1100	$24.00	$18.70	$26,400.00	$20,570.00
Total				$94,550.00	$95,200.00	$94,550.00
Carrying value of Inventory at December 31, 2021 = $94,550

Solution:

No Journal Entry required.

Because Cost = LCNRV