In: Accounting
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.
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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.)
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2b. Record any necessary year-end adjusting entry assuming that inventory write-downs are common for Forester Company.
Note: Enter debits before credits.
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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) |