Question

Inventory Valuation Case Bottle Inc. sells one product, which it purchases from various suppliers. Bottle's trial balance at December 31, 2018, included the following accounts: Sales (33,000 units @ $16) Sales discounts Purchases Purchase discounts $528,000 7,500 368,900 18,000 5,000 11,000 Freight-in Freight-out Bottle Inc.'s inventory purchases during 2018 were as follows: Beginning Inventory Purchased - Q1 ending 3/31 Purchased - Q2 ending 6/30 Purchased - Q3 ending 9/30 Purchased - Q4 ending 12/31 Units 7,000 13,000 15,000 12,000 8,000 55,000 Cost per Unit $7.70 1 $7.50 $7.90 | $8.25 | $8.20 Total Cost $53,900 $97,500 $118,500 $99,000 $65,600 Additional Information: a. Bottle's accounting policy is to report inventory in its financial statements at the lower of cost or net realizable value, applied to total inventory. Cost is determined under the first-in, first-out (FIFO) method. b. Bottle Inc. has determined that, at December 31, 2018, the net realizable value was $8.00 per unit. Required: 1. Prepare Bottle's schedule of cost of goods sold. 2. Prepare a supporting schedule of ending inventory with costs by layer. This is the cost of ending inventory that would be reported in the inventory account under the FIFO method. 3. Determine the value that should be reported on the balance sheet using the LOCNRV method. If a write down of inventory is necessary, include the appropriate journal entry that should be recorded. 4. Prepare your results in a business style memo with supporting excel schedules

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Answer 1

1. Cost of Goods Sold

Beginning inventory	53900
Add: Purchases	368900
Less: Purchases discount	-18000
Add: Freight in	5000
Cost of goods sold	409800

2. Cost of inventory under FIFO

Sales = 33000 units (given)

This sales of 33000 units will be made as under by following FIFO method:

Sale of 7,000 units from beginning inventory.

Sale of 13,000 units from purchases for Q1 ended.

Sale of 13,000 units from purchases for Q2 ended.

According the position of inventory will be as follows:

	Units	Price	Cost
Purchased in Q2 ended	2000 (15,000 purchased - 13,000 sold)	7.9	$15,800
Purchased in Q3 ended	12000	8.25	$99,000
Purchased in Q4 ended	8000	8.2	$65,600
Total	22000		$180,400

3. Amount to be reported in Balance Sheet

NRV per unit = $8

Thus total NRV = 22000 * 8 = $176,000

Cost = $180,400 (as calculated above)

Thus value of inventory as per LOCNRV (Lower of Cost or NRV) method is $176,000

Amount of write down = $180,400 - $176,000 = $4,400

Journal entry for write down of inventory:

Account	Debit	Credit
Loss on inventory write down	4400
Inventory		4400