Question

Reporting Inventory at Lower of Cost or Net Realizable Value Sanchez Company was formed on January 1 of the current year and is preparing the annual financial state ments dated December 31, current year. Ending inventory information about the four major items stocked for regular sale follows: Item ENDING INVENTORY, CURRENT YEAR Quantity Unit Cost When Net Realizable Value on Hand Acquired (FIFO) (Market) at Year-End $20 $15 40 44 55 27 32 Required: 1. Compute the valuation that should be used for the current year ending inventory using lower or net realizable value applied on an item-by-item basis. (Hint: Set up columns for Item Total Cost, Total Net Realizable Value, and Lower of Cost or NRV.) 2. What will be the effect of the write down of inventory to lower of cost or net realizable value of goods sold for the year ended December 31, current year?

Answer 1

Sanchez company Rea I (Lower of A CO B Item 30 Toray ouantity cost $ 600 55 2200 1820 15 405 $ 5025 TOTG Net market (NRU) $ 450 2420 1925 480 $ 5275 Lowes of cost OR NRU. & 450 2200 1820 405 $ 4875 35 Total cost : A = 30 X 820 = 600 B = 355 X $40 = 2200 c = 35 X $52 = 1820 D - 15 X & 27 = 405 TOTO Net Realizable value. S = A 30 X B = 55 x C = 35 X b = 15 X 15 44 55 $ 450 2420 1925 480 32 2 TOT cost - ccm valuation = write down &5025 $4875 = S 150 write down Date Account name Dec 31 cost of Good sold TO Inventory ICTO write down inventory) IS Debit credit Iso $ 150