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		900		$	29			$	31			$	35
B		900			34				30				37
C		900			22				21				27
D		900			26				23				25
E		1,000			33				31				32

The cost to sell for each product consists of a 20 percent sales commission. The normal profit for each product is 40 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.

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 (900) $27,900 B (900) 27,000 C (900) 18,900 D (900) 20,700 E (1000) 31,000 Total $0 $0 $0

Determine the carrying value of inventory at December 31, 2021, assuming the LCM rule is applied to the entire inventory. (Do not round intermediate calculations.)

	Inventory carrying value

Journal entry worksheet

• Record any necessary year-end adjusting entry assuming that inventory write-downs are common for Forester Company.

Note: Enter debits before credits.

	Transaction General Journal Debit Credit 1

I'm not understanding the formulas used to get the answer. Can someone break it down for me?

Answer 1

- To determine the carrying value at December 31,2021 at lower of cost or market (2CM) sule. to individual product ... we have to find out market value at year and market value = middle value of three amounts 1. Replacement cost .. 2. NRV Unit Price a) aty Cosl-unit 3. NRV less normal profit margin working Nede; I Determining the RC, NRV NI V-NP product Replacement cost. Qly x unit Replacement costs Not selline Replacement Replacement Commission I RC Cost e zolen Selling pria 900 dab-c) 27,400 28 37 7.4 29-6 18,900 27 feles pni's prieb) 31 35 900 30 27,000 5.4 21.6 900 21 23 900 20,700 5 25 20 32 6.4 31,000 | 25.6. TNRVT Total Net 1 profil NRY NRV-NP Amount. (WRr- Normal profit margin NRV - Nostale Net Selling (d) paie 28 Sales Price Taxa profit on selling Price Tox 40% TY To-f=9 28,200 26,640 14 29-6 14.8 14.8 1018 gxa 12,600 13,320 9,720 21.6 19,440 5.1068 ܘܐ qooo 12.8 20 18.000 25. 6 25600 am Scanner 12.8 12,800

Carrying value of Inventory assuming lower of cost on market (LCM) sule is applied to Individual products" Inventory ( working Note: in No: Maite NRV-NP Carrying Le) value Product 1NRV و هماه (units) 192 b) 26,100 25,200 12,600 (dande) 25,200 26640 25,200 26,640 / 39,600 23,320 18,900 13,900 19,800 9,720 18,900 23,400 23,4001 18,000 18,000 31,000 E (1000) 25,600 Total Cost Amount A (900) 27,900 B (100) 27,000 26,640 c (800) 19,440 D (900) 20,700 18,000 12,800 25,600 33,000 25,600 114340 132900 114,340 T Market value = middle value of a, b, c calculating cost product units cost/unit A Goo 29 96,100 B 200 34 30,600 c 900 22 19,800 D 900 26 23,400 1000 33 33,000 1. Inventowy carrying value for Individua? predict is 14,340 2. If carrying value of inventory at December 31, 2021 assuming Zero gule is applied to the enble Inventowy Total Market value 114,340 Total cost valde 132,900 lower of cost as market 114,340 CS Canedo ! Carrying amount is 114,340 بلا م ب 2 4\

3. Difference as per a C . of cost and spy Carrying value is cost i 182,900 market-value = 114,340 Loss .. $18,560 Entry is a Debit credit Dalia particulars on Inventory valuation 18,560 - Dec. 31,2021 Loss 18568 Inventory (To record the loss on valuation s year end Inventory ) Fics Scanned with canScanner