Question

Forester Company has five products in its inventory. Information about the December 31, 2018 , inventory follows.

Product	Quantity	Cost	Cost	Price
A	800	$13	$15	$19
B	600	18	14	21
C	500	6	5	11
D	900	10	7	9
E	600	17	15	16

The cost to sell for each product consists of a 20 percent sales commission. The normal profit percentage for each product is 30 percent of the selling price.

Required:

1. Determine the carrying value of inventory at December 31, 2018, assuming the lower of cost or market (LCM) rule is applied to individual products.

2a. Determine the carrying value of inventory at December 31, 2018, assuming the LCM rule is applied to the entire inventory)

2b. Assuming inventory write-downs are usual business practice for Forester, record any necessary year-end adjusting entry,

Answer 1

Forester Company Requirement 1 Requirement 2. Product (units) A (800) B (600) C (500) D (900) E (600) Dr. RC 12000 8400 2500 6300 9000 NRV 12160 10080 4400 6480 7680 NRV-NP Market 7600 12000 6300 8400 2750 2750 4050 6300 4800 7680 Totals 37130 Journal Enteries Trans. Particulars 1 Cost of goods sold a/c To Inventory Inventory Value 10400 8400 2750 6300 7680 35530 10400 10800 3000 9000 10200 43400 Debit in $ Credit in $ 6270 6270 Requirement 2a. Inventory carrying value would be $37,130, the lower of aggregate inventory cost ($43,400) and aggregate inventory market ($37,130). The amount of the loss from inventory write-down is $6,270 ($43,400-37,130)