Question

Use the following information for questions 1 & 2 RAC Corp sells refrigerators and dishwashers. Information related to the inventory of RAC Corp is provided below.  

Use the following information for questions 1 & 2 RAC Corp sells refrigerators and dishwashers. Information related to the inventory of RAC Corp is provided below.
        Cost   - Replacement Cost   - Net Realizable Value      - Net Realizable Value Less a Normal Profit Margin
Refrigerator Models    

Elite 80,000 - 70,000 - 80,000 - 60,000

Standard 100,000 - 110,000 - 100,000 - 70,000

Economy 90,000 - 75,000 - 90,000 - 80,000          

Dishwasher Models    

Pro 150,000 - 140,000 - 170,000 - 155,000

Residential 95,000 - 85,000 - 92,000 - 80,000
1. Calculate the final inventory value for RAC Corp based on individual inventory items (5 points):   

  
2. Record the journal entry to write-down inventory assuming the allowance method is used (4 points).    

Answer 1

Statement Showing Final Inventory for RAC Corp Motor- For Refregirator								Journal Entry
Refrigerator Models	Cost	Replacement value	NRV	NRV - Normal profit margin	Lower of Cost or market value	Choice		Account Title & Explanantion	Debit	Credit
Elite	80000	70000	80000	60000	70000	(Replacement value)		Loss - Reducing inventory to LCM	20000
Standard	100000	110000	100000	70000	100000	(cost or repalcement value limited to NRV)		Allowance -To Reduce Inventory to LCM		20000
Economy	90000	75000	90000	80000	80000	(replacement value, limited to $80,000)		To Record Loss due to Inventory Valutaion on Refregerator
	270000				250000
								Loss - Reducing inventory to LCM	10000
Statement Showing Final Inventory for RAC Corp Motor for Diswasher								Allowance -To Reduce Inventory to LCM		10000
Dishwasher model:	Cost	Replacement value	NRV	NRV - Normal profit margin	Lower of Cost or market value	Choice		To Record Loss due to Inventory Valutaion on Diswasher
Pro	150000	140000	170000	155000	150000	(Cost, as replacement value is limited to $155,000)
Residential	95000	85000	92000	80000	85000	(Replacement value)
	245000				235000