Question

he following information applies to the questions displayed below.] A local Chevrolet dealership carries the following types of vehicles: Inventory Items Quantity Cost per Unit NRV per Unit Vans 2 $26,000 $24,000 Trucks 5 17,800 16,800 2-door sedans 1 12,800 14,800 4-door sedans 6 16,800 19,800 Sports cars 2 36,000 39,000 SUVs 7 29,600 27,000 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

Items Quantity Cost per unit NRV per unit

Vans 2 $26000 $24000

Trucks 5 $17800 $16800

2 door sedan 1 $12800 $14800

4 door sedans 6 $16800 $19800

Sports car 2 $36000 $39000

SUVs 7 $29600 $27000

1) Total cost of the entire inventory = (2*$26000) +(5*$17800) +(1*$12800) +(6*$16800) + (2*$36000) +(7*$29600)

= $52000+$89000+$12800+$100800+$72000+$207200=$533800

2) Each item will be reported at cost or net realizable value, whichever is lower.

  items Quantity Cost per unit NRV per unit Lower of cost or NRV(per unit) Total

Vans 2 $26000 $24000 $24000 $48000

Trucks 5 $17800 $16800 $16800 $84000

2 door sedan 1 $12800 $14800 $12800 $12800

4 door sedan 6 $16800 $19800 $16800 $100800

Sports car 2 $36000 $39000 $36000 $72000

SUVs 7 $29600 $27000 $27000 $189000

Total $506600

3)

Items Journal Entry Total cost Total of lower of cost or NRV   

Vans Debit: Loss of decline in NRV $4000 $52000 $48000

Credit : Inventory $4000

Trucks Debit: Loss of decline in NRV $5000    $89000 $84000

Credit : Inventory $5000

2 door sedan No Entry required $12800 $12800

4 door sedan No Entry required $100800 $100800

Sports car No Entry required $72000 $72000   

SUVs Debit: Loss of decline in NRV $18200 $207200 $189000

Credit : Inventory $18200

4) This staement is true. Write down of inventory from cost to net realizable value reduces net income and retained earnings.