Question

Forester Company has five products in its inventory Information about the December 2013 Unit Cost 5 16 21 Replacement Cost $18 17 Unit Selling Price 522 Product Quantity 900 1,000 900 1,000 900 20 The cost to sell for each product consists of a 10 percent sales commission. The normal profit percentage for product is 40 percent of the selling price. Required: 1. Determine the carrying value of inventory at December 31, 2018, assuming the lower of cost or market de 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 yem-end adjusting entry Complete this question by entering your answers in the tabs below. Nort2

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Answer 1

Solution Required 1.: Lower of cost or market (LCM) rule is applied to individual products. Step-1: Compute the NRV per unit and NRV-NP per unit (NRV-NP) Product Unit Selling Price NRV per unit per unit $22.00 $24.00 $14.00 $12.00 $19.00 Sales Commission @10% $2.20 $2.40 $1.40 $1.20 $1.90 $19.80 $21.600 $12.60 $10.80 $17.10 Normal Net Profit (NP) $8.80 $9.60 $5.60 $4.80 $7.60 $11.00 $12.00 $7.00 $6.00 $9.50 Step-2: Determine the carrying value of inventory Product Units Cost Inventory Value 900 1,000 900 1,000 900 Replacement Cost (RC) $16,200 $17,000 $ 7,200 $10,000 $16,200 Totals | NRV (ceiling) $17,820 $21,600 $11,340 $10,800 $15,390 NRV-NP (Floor) $9,900 $12,000 $6,300 $6,000 $8,550 Market Value $16,200 $17,000 $7,200 $10,000 $15,390 $65,790 $14,400 $21,000 $8,100 $13,000 $18,000 $74,500 $14,400 $17,000 $7,200 $10,000 $15,390 $63,990 Carrying value of inventory at December 31, 2018 | $63,990 Required 2a.: Lower of cost or market (LCM) rule is applied to the entire inventory Market Value (Refer Part 1) Cost (Refer Part 1) Lower of cost or Market (LCM) $65,790 $74,500 $65,790 Carrying value of inventory at December 31, 2018 $65,790 Required 2b.: Journal entry to record any necessary year-end adjusting entry. Loss on write down the inventory ($74,500 - $65,790) $8,710 Journal entry Cost of Goods sold Inventory Dr. $8,710 $8,710