Question

Tatum Company has four products in its inventory. Information about the December 31, 2016, inventory is as follows:

Product Total Cost ($) Total Net Realizable Value ($)
101 120,000 100,000
102 90,000 110,000
103 60,000 50,000
104 30,000 50,000
Required:

1. Determine the book value of inventory at December 31, 2016, assuming the lower of cost or net realizable value rule is applied to individual products.

Product Cost NRV Inventory Value
101
102
103
104

Answer 1

The book value of Tatum Company's inventory at December 31, 2016, using the lower of cost or NRV rule applied to individual products, is calculated by choosing the lower value between cost and NRV for each product. The total inventory value is $270,000, determined by summing the lower of the two values for each product.

Step-by-step explanation:

When applying the lower of cost or net realizable value (NRV) rule to the inventory of Tatum Company, we must compare the cost and NRV of each product individually and choose the lower value for recording purposes.

• Product 101: Cost is $120,000 and NRV is $100,000. Inventory value is $100,000.
• Product 102: Cost is $90,000 and NRV is $110,000. Inventory value is $90,000.
• Product 103: Cost is $60,000 and NRV is $50,000. Inventory value is $50,000.
• Product 104: Cost is $30,000 and NRV is $50,000. Inventory value is $30,000.

To determine the book value of inventory, we simply add the inventory values of each product:

$100,000 (Product 101) + $90,000 (Product 102) + $50,000 (Product 103) + $30,000 (Product 104) = $270,000