Question

In: Accounting

Forester Company has five products in its inventory. Information about the December 31, 2018, inventory follows....

Forester Company has five products in its inventory. Information about the December 31, 2018, inventory follows.

Product Quantity Unit
Cost
Unit
Replacement
Cost
Unit
Selling
Price
A 600 $ 12 $ 14 $ 18
B 1,000 17 13 20
C 600 5 4 10
D 600 9 6 8
E 600 16 14 15


The cost to sell for each product consists of a 10 percent sales commission. The normal profit percentage for each product is 25 percent of the selling price.

Required:
1. Determine the carrying value of inventory at December 31, 2018, assuming the lower of cost or market (LCM) rule is applied to individual products.

Product (units) RC NRV NRV-NP Market Cost Inventory Value
A (600)
B (1000)
C (600)
D (600)
E (600)
Total $0 $0 $0

2a. Determine the carrying value of inventory at December 31, 2018, assuming the LCM rule is applied to the entire inventory. (Do not round intermediate calculations.)

Inventory carrying value

2b. Record any necessary year-end adjusting entry assuming that inventory write-downs are common for Forester Company.

Note: Enter debits before credits.

Event General Journal Debit Credit
1

Solutions

Expert Solution

Ans:

Product NRV Per Unit NRV-NP per Unit
A 18 -( 18 * 0.1)= 16.2 16.2 -( 18 * 0.25)= 11.7
B 20 -( 20 * 0.1)= 18 18 -( 20 * 0.25)= 13
C 10 -( 10 * 0.1)= 9 9 -( 10 * 0.25)= 6.5
D 8 -( 8 * 0.1)= 7.2 7.2 -( 8 * 0.25)= 5.2
E 15 -( 15 * 0.1)= 13.5 13.5 -( 15 * 0.25)= 9.75
Product(units) Replacement Cost (1) Celling NRV (2) Floor NRV-NP (3) Designated market Value (4) Cost (5) Inventory value(Lower of 4 load 5)
A ( 600*Units) 8400 9720 7020 8400 7200 7200
B ( 1000*Units) 13000 18000 13000 13000 17000 13000
C ( 600*Units) 2400 5400 3900 2400 3000 2400
D ( 600*Units) 3600 4320 3120 3600 5400 3600
E ( 600*Units) 8400 8100 5850 8100 9600 8100
Totals 35500 42200 34300
Note:Replacement cost=Number of units* Replacement cost,..Actual cost=Actual cost*Number of Units...Etc
Designated market value=Lower of Replacement cost or celling NRV
Inventory value:The Lower of Aggregate Inventory Cost And Aggregate Inventory Market Value
2a)Inventory Carrying value would be $ 35500 The Lower of Aggregate Inventory
Cost And Aggregate Inventory Market Value
2b. The Amount of the Loss after Inventory write down = ( 42200- 35500) $ 6,700.00
The Difference of Aggregate Inventory Cost And Aggregate Inventory Market Value
General Journal Entry
Event General Journal Debit Credit
1
Inventory Write Down or Loss $ 6,700.00
   Inventory $         6,700.00
(Inventory Write down recorded)

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