Question

down home furnishings reports inventory using the lower of cost and net realizable value (nrv). below is information related to its year-end inventory. inventory quantity unit cost unit nrv furniture 260 $91 $106 electronics 56 460 400 required: 1. calculate the total recorded cost of ending inventory before any adjustments. 2. calculate ending inventory using the lower of cost and net realizable value. 3. record any necessary adjusting entry for inventory. 4. determine the impact of the adjusting entry in the financial statements.

Answer 1

To handle the valuation of inventory, calculate the cost by multiplying each item's unit cost by its quantity, compare to NRV, then use the lower value for the adjusting entry. The entry decreases assets and net income.

Step-by-step explanation:

The student's question relates to the accounting practice of valuing inventory at the lower of cost or net realizable value (NRV). To answer your questions:

1. To calculate the total recorded cost of ending inventory before any adjustments, multiply the unit cost by the quantity for each item, and sum the totals:

Furniture: 260 units * $91/unit = $23,660

Electronics: 56 units * $460/unit = $25,760

Total Cost = $23,660 + $25,760 = $49,420

1. To calculate the ending inventory using the lower of cost and NRV, you compare the unit cost and unit NRV for each item and use the lower value:

Furniture: 260 units * $91/unit (lower value) = $23,660

Electronics: 56 units * $400/unit (lower value) = $22,400

Total NRV = $23,660 + $22,400 = $46,060

1. The adjusting entry for inventory would account for the decrease in value from cost to NRV:

Debit: Loss due to inventory write-down $3,360

Credit: Inventory $3,360

1. This adjusting entry would decrease total assets and reduce net income for the period on the financial statements.