84.7k views
1 vote
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.

User October
by
8.0k points

1 Answer

2 votes

Answer:

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)

User Caleb Waldner
by
9.0k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.