Question

Almaden Hardware Store sells two product categories, tools and paint products. Information pertaining to its 2018 year-end inventory is as follows: Inventory, by Product Category Quantity Per Unit Cost Net Realizable Value Tools: Hammers 100 $ 4.50 $ 5.00 Saws 150 9.50 8.50 Screwdrivers 250 1.50 2.10 Paint products: 1-gallon cans 450 5.50 4.50 Paint brushes 100 3.50 4.00 Required: 1. Determine the carrying value of inventory at year-end, assuming the lower of cost or net realizable value (LCNRV) rule is applied to (a) individual products, (b) product categories, and (c) total inventory. 2. Assuming that the company reports an inventory write-down as a line item in the income statement, for each of the LCNRV applications determine the amount of the loss.

Answer 1

Answer

	cost	market	a. Individual	b. product	c. total market
Tools:
Hammers	450	500	450	500	500
Saws	1425	1275	1275	1275	1275
Screwdrivers	375	525	375	525	525
total tools:	2250	2300	2100	2300	2300
Paint products:
1-gallon cans	2475	2025	2025	2025	2025
paint brushes	350	400	350	400	400
total paint products:	2825	2425	2375	2425	2425
total	5075	4725	4475	4725	4725

(For A, individual pick the lower of cost or market for each item individually - some are at cost and some are at market - it depends on which is lower for each item. For b, product, pick the lower of cost or market for the entire group (tools or paint brushes), both groups have lower market values (2300 versus 2250 for tools and 2425 versus 2825 for paint products, so both groups have been set to market. For c, the total for market of 4725 is lower than the total for cost of 5075, so the entire inventory is set to market.

(a) Individual products $ 600 (this is 5075 – 4475)
(b) Product type $ 350 (this is 5075 – 4725)
(c) Total inventory $ 350 (this is 5075 – 4725)