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Tatum Company has four products in its inventory. Information about the December 31, 2018, inventory is...

Tatum Company has four products in its inventory. Information about the December 31, 2018, inventory is as follows:

product total cost total replacement cost total net realizable value
101 $120,000 $100,000 $100,000
102 90,000 85,000 110,000
103 60,000 40,000 50,000
104 30,000 28,000 50,000

* The normal gross profit percentage is 25% of total cost

1. Determine the carrying value of inventory at December 31, 2018, 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.

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Answer #1

a. Designated market value is the amount compared to cost,it is always the Middle value of the three amounts of

1.Replacement CostDetermination of Carrving Value of Inventory at December 31,2018 Product Replacement Cost Net Reliasable Value Cost Of Goods Sold Designated Value Cost Inventory Value (Lower of D or E RC NRV COGs-NRV-25%(NRV 101 $ 102 $ 103 $ 104 $ 1,00,000$ 85,000 $ 40,000 $ 28,000 $ 1,00,000 $ 1,10,000$ 50,000 $ 50,000 $ 75,000$ 82,500 $ 37,500 $ 37,500 $ 1,00,000 $1,20,000$1,00,000 85,000 40,000 30,000 2,62,500 $3,00,000$2,55,000 85,000 S 90,000 S 40,000 $ 60,000 $ 37,500 30,000 $ Determination of Desiganted Vallue in Product 102 For example in Product 102, the highest value among RC,NRV,COGS Highest Value is NRV $110000 Lowest Vas Middle Value is RC = $85000 So,here Desiganted Value is RC,since it is Middle Value 37,500 Note: Same Process for Remaining products alsoParticulars Debit Credit Cost of goods Sold a/c ($ 300000-$ 262500) $37500 To Inventory a/c S 37500 Loss in Inventory Value is Cost of Inventory - Designated value i.e $ 300000 - $2625000 $37500

2. NRV

3. NRV less normal profit margin

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