Question

Forester Company has five products in its inventory. Information about the December 31, 2021, inventory follows.

Product		Quantity		Unit Cost				Unit Replacement Cost				Unit Selling Price
A		1,000		$	28			$	30			$	34
B		900			33				29				36
C		500			21				20				26
D		600			25				22				24
E		700			32				30				31

The cost to sell for each product consists of a 10 percent sales commission. The normal profit for each product is 35 percent of the selling price.

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. Determine the carrying value of inventory at December 31, 2021, assuming the LCM rule is applied to the entire inventory.
3. Assuming inventory write-downs are common for Forester, record any necessary year-end adjusting entry based on the amount calculated in requirement 2.

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3

Determine the carrying value of inventory at December 31, 2021, assuming the lower of cost or market (LCM) rule is applied to individual products. (Do not round intermediate calculations.)

	Product (units) RC NRV NRV-NP Market Cost Inventory carrying value A (1000) $30,000 $30,000 $28,000 $28,000 B (900) 26,100 29,160 26,100 29,700 C (500) 10,000 11,700 10,500 D (600) 13,200 12,960 15,000 E (700) 21,000 19,530 19,530 22,400 19,530 Total $75,630 $105,600 $47,530

Answer 1

1
Product	Unit Selling price	Sales Commission @10%	NRV per unit	Net profit (NP) (35% of Selling price)	(NRV - NP) per unit
A	$36.00	$3.60	$32.40	$12.60	$19.80
B	$36.00	$3.60	$32.40	$12.60	$19.80
C	$26.00	$2.60	$23.40	$9.10	$14.30
D	$24.00	$2.40	$21.60	$8.40	$13.20
E	$31.00	$3.10	$27.90	$10.85	$17.05

Carrying Value of Inventory
Product	Replacement Cost	NRV (Ceiling)	NRV - NP (floor)	Market value	Cost	LCM Rule
A	$30,000	$32,400	$19,800	$30,000	$28,000	$28,000
B	$26,100	$29,160	$17,820	$26,100	$29,700	$26,100
C	$10,000	$11,700	$7,150	$10,000	$10,500	$10,000
D	$13,200	$12,960	$7,920	$12,960	$15,000	$15,000
E	$21,000	$19,530	$11,935	$19,530	$22,400	$19,530
Total				$98,590	$105,600	$98,630
Carrying Value of Inventory December 31, 2021 is $98,630

2. Carrying Value of Inventory December 31, 2022 assuming LCM rule applied for entire inventory.
Market value (Part 1)	$98,590
Cost (Part 1)	$105,600
Lower of cost or market value	$98,590
Carrying Value of Inventory December 31, 2021 $98,590

3. Year end adjusting Entry
Accounts	Debit	Credit
Cost of Goods Sold ( $105,600 - $98,590)	$7,010
Inventory		$7,010