Tatum Company has four products in its inventory. Information about the December 31, 2021, inventory is as follows:
Product | Total Cost | Total Replacement Cost |
Total Net Realizable Value |
||||||
101 | $ | 156,000 | $ | 142,400 | $ | 129,400 | |||
102 | 115,800 | 109,300 | 141,500 | ||||||
103 | 77,100 | 51,400 | 65,000 | ||||||
104 | 39,300 | 36,700 | 65,900 |
Required:
1. Determine the carrying value of inventory at
December 31, 2021, assuming the lower of cost or market (LCM) rule
is applied to individual products.
2. Assuming that inventory write-downs are common
for Tatum Company, record any necessary year-end adjusting
entry.
ANSWER
Part-1 | ||||||
Product | Cost (1) | NRV (2) | NRV-Np (NP= 30% (3) |
Middle Value of (4)=(1) (2) (3) | cost (5) |
Inventory Lower of (4 or 5) |
101 | $1,56,000 | $1,29,400 | $82,600 | $1,29,400 | $1,56,000 | $1,29,400 |
102 | $1,15,800 | $1,41,500 | $1,06,760 | $1,15,800 | $1,15,800 | $1,15,800 |
103 | $77,100 | $65,000 | $41,870 | $65,000 | $77,100 | $65,000 |
104 | $39,300 | $65,900 | $54,110 | $54,110 | $39,300 | $39,300 |
Total | $3,88,200 | $4,01,800 | $2,85,340 | $3,64,310 | $3,88,200 | $3,49,500 |
Journal Entry | |||
a. If Inventory write off is immaterial | |||
Date | Account | Debit | Credit |
31-Dec | Cost of Goods sold (388200-349500) |
$38,700 | |
Inventory | $38,700 | ||
(To write off inventory) | |||
b. If inventory write off is material | |||
Date | Account | Debit | Credit |
31-Dec | Loss on inventory write off | $38,700 | |
Inventory | $38,700 | ||
(To write off inventory) |
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