Question

Malone Company determined its ending inventory at cost and at LCNRV at December 31, 2017, December 31, 2018, and December 31, 2019, as shown below. 12/31/17 12/31/18 12/31/19 Cost $650,000 $780,000 $905,000 NRV $660,000 $712,000 $830,000 (a) 1- What is the value of the ending inventory as of December 31 2018? Show computations 2 - What is the value of the ending inventory as of December 31 2019? Show computations (b)Prepare the journal entries required at December 31, 2018 assuming that a perpetual inventory system and the cost-of-goods-sold method of adjusting to LCNRV is used.

Answer 1

Inventory should be valued at Cost or NRV which ever is lower.

(a)

December 31st, 2018

Cost = $780,000

NRV = $712,000

Since NRV is lower than cost, inventory is valued at NRV ie. $712,000

December 31st, 2019

Cost = $905,000

NRV = $830,000

Since NRV is lower than cost, inventory is valued at NRV ie. $830,000

(b)

Date	Account titles and explanation	Debit	Credit
Dec 31, 2018	Cost of goods sold ($780,000 - $712,000)	$68,000	-
	Allowance to reduce inventory to NRV	-	$68,000
	(To record reduce in the value of inventory)