Question

SLR Corporation has 1000 units of each of its two products in its year end inventory. Per unit data for each of the products are as follows.

Product 1: Cost $50, Selling Price 70, Cost to sell 6.

Product 2: Cost $34, Selling Price 36, Cost to sell 4.

Determine the carrying value of SLR's inventory assuming that the lower of cost of net realizable value rule is applied to individual products. What it the before-tax income effect of the LCNRV adjustment?

Answer 1

Product 1	Product 2
Cost	50	34
Selling price	70	36
Cost to sell	6	4
NRV	64	32
Lower of cost or NRV	50	32
Units	1000	1000
Carrying value of inventory (LCNRV)	50000	32000
2
	Product 1	Product 2	Total
Cost	50	34
Units	1000	1000
Total cost	50000	34000	84000
Carrying value of inventory (LCNRV)	50000	32000	82000
Difference	2000
Before income tax effect lower by $2000