Question

Company has four products in its inventory. Information about the December 31, 2021, inventory is as follows: Product Total Cost Total Replacement Cost Total Net Realizable Value 101 $ 139,000 $ 127,100 $ 115,500 102 103,600 97,800 126,600 103 69,000 46,000 57,900 104 34,900 32,600 58,400 The normal profit is 40% of total cost. Required: 1. Determine the carrying value of inventory at December 31, 2021, assuming the lower of cost or market (LCM) rule is applied to individual products. 2. Assuming that inventory write-downs are common for Tatum Company, record any necessary year-end adjusting entry.

Answer 1

The calculation is shown below:

Step-by-step explanation:

1. The computation of the carrying value of the inventory is shown below:

Product Total Cost Total Replacement Cost Total Net Realizable Value Lower value

101 $139,000 $127,100 $115,500 $115,500

102 $103,600 $97,800 $126,600 $97,800

103 $69,000 $46,000 $57,900 $46,000

104 $34,900 $32,600 $58,400 $32,600

Total $346,500 $291,900

b. Now the journal entry is

In the case of immaterial

Cost of goods sold $54,600 ($346,500 - $291,900)

To Inventory $54,600

(Being the write off inventory is recorded)

In the case of material

Loss on inventory write off $54,600 ($346,500 - $291,900)

To Inventory $54,600

(Being the write off inventory is recorded)