Question

Sanchez Company was formed on January 1 of the current year and is preparing the annual financial statements dated December 31, current year. Ending inventory information about the four major items stocked for regular sale follows: ENDING INVENTORY, CURRENT YEAR Net Realizable Unit Cost When Value (Market) Acquired (FIFO) at Year-End $ 20 $ 25 Quantity on Hand 30 Item 50 54 67 65 20 Required: 1. Compute the valuation that should be used for the current year ending inventory using lower of cost or net realizable value applied on an item-by-item basis. 2. What will be the effect of the write-down of inventory to lower of cost or net realizable value on cost of goods sold for the year ended December 31, current year? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the valuation that should be used for the current year ending inventory using lower of cost or net realizable value applied on an item-by-item basis. Item Quantity Total Net Total Cost Realizable Value Lower of Cost or NRV 30 65 45 20 Total $ 0 $ 0 $ 0 Required 1 Required 2 >

Answer 1

Item	Quantity	Total Cost	Total net realizable value	Lower of cost or NRV
A	30	600	750	600
B	65	3250	3510	3250
C	45	3015	2925	2925
D	20	740	840	740
Total		7605	8025	7515

Cost of goods sold increase by (7605-7515) = 90