Parry Company has five different inventory items that are valued by the lower or net realizable...
Parry Company has five different inventory items that are valued by the lower or net realizable value method applied on an individual basis. The normal markup on all items is 20% of cost. The following information was obtained from the accounting records.
| item/cost | replacement cost | net realizable value | net realizable value - normal profit | designated market value | final inventory value |
| A. 5000 | 4550 | 4600 | |||
| B. 3200 | 3240 | 3120 | |||
| C. 4500 | 4050 | 4200 | |||
| D. 3600 | 2400 | 3400 | |||
| E. 2500 | 2550 | 2530 | |||
| Total | 18,800 |
Instructions:
a. Complete the table above, determining Net Realizable Value Less Normal Profit, Designated Market value and Final Inventory for the individual items and Total Final Inventory.
b. Prepare the journal at December 31, 2020, assuming the inventory is recorded at LCNRV a perpetual inventory system using the loss method.
Homework Answers
a.
| 1 | 2 | 3 | 4 | 5 | 6 |
| Cost | NRV | NRV less Normal Profit Margin | Replacement Cost | Designated Market Value | Inventory Value (Lower of cost or market value) |
| A. $ 5,000.00 | $ 4,600.00 | $ 3,600.00 | $ 4,550.00 | $ 4,550.00 | $ 4,550.00 |
| B. $ 3,200.00 | $ 3,120.00 | $ 2,480.00 | $ 3,240.00 | $ 3,240.00 | $ 3,200.00 |
| C. $ 4,500.00 | $ 4,200.00 | $ 3,300.00 | $ 4,050.00 | $ 4,050.00 | $ 4,050.00 |
| D. $ 3,600.00 | $ 3,400.00 | $ 2,680.00 | $ 2,400.00 | $ 2,680.00 | $ 2,680.00 |
| E. $ 2,500.00 | $ 2,530.00 | $ 2,030.00 | $ 2,550.00 | $ 2,550.00 | $ 2,500.00 |
| $ 18,800.00 | $ 17,850.00 | $ 14,090.00 | $ 16,790.00 | $ 17,070.00 | $ 16,980.00 |
b.
| Account Title | Debit | Credit |
| Loss due to decline in inventory (18800-16980) | $ 1,820.00 | |
| Allowance for reduction in inventory | $ 1,820.00 |
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