Question

Almaden Hardware Store sells two product categories, tools and paint products. Information pertaining to its 2021 year-end inventory is as follows:Inventory,by Product Category Quantity Per Unit Net Realizable Value Cost Tools:Hammers 100 $4.80 $5.30 Saws 180 9.80 8.80 Screwdrivers 280 1.80 2.40 Paint products: 1-gallon cans 480 5.80 4.80 Paint brushes 100 3.80 4.30 Required:

1. Determine the carrying value of inventory at year-end, assuming the lower of cost or net realizable value (LCNRV) rule is applied to (a) individual products, (b) product categories, and (c) total inventory.2. Assuming inventory write-downs are common for Almaden, record any necessary year-end adjustment amount for each of the LCNRV applications in requirement 1.

Answer 1

The carrying value of inventory for individual products is $5252, for product categories is $5482, and for total inventory is $5520. Year-end adjustment amounts for write-downs are $660 for individual products, $430 for product categories, and $392 for total inventory.

Step-by-step explanation:

Year-End Inventory Valuation

To determine the carrying value of the inventory for Almaden Hardware Store using the lower of cost or net realizable value (LCNRV), we will consider each product, product category, and the total inventory. The LCNRV rule ensures that the inventory is reported at the lower of either its cost to produce/buy or the amount it can currently be sold for - its net realizable value.

Individual Products - Here's the calculation:

Total Carrying Value (Individual Products) = $480 + $1584 + $504 + $2304 + $380 = $5252

Product Categories - Tools: Cost = $2748, NRV = $2786, Take the lower = $2748. Paint products: Cost = $3164, NRV = $2734, Take the lower = $2734. Total Carrying Value (Product Categories) = $2748 + $2734 = $5482.

Total Inventory - Total Cost = $5912, Total NRV = $5520, Take the lower = $5520.

For the year-end adjustments, any inventory write-downs should be recorded as an expense to reflect the decrease in value and thus, reduce the inventory carrying value to the amount calculated using LCNRV.

Individual Products Adjustment: Original cost = $5912, LCNRV total = $5252, Write-down = $660

Product Categories Adjustment: Original cost = $5912, LCNRV total = $5482, Write-down = $430

Total Inventory Adjustment: Original cost = $5912, LCNRV total = $5520, Write-down = $392

Answer 2

Product category units cost NRV year-end inventory

Tools:

• Hammers 100 $4.80 $5.30 $480
• Saws 180 $9.80 $8.80 $1,584
• Screwdrivers 280 $1.80 $2.40 $504

Paint products:

• 1-gallon cans 480 $5.80 $4.80 $2,304
• Paint brushes 100 $3.80 $4.30 $380

1) carrying value of year-end inventory:

Tools:

• Hammers $480
• Saws $1.584
• Screwdrivers $504
• sub-total $1,573

Paint products: $2,568

• 1-gallon cans $2,304
• Paint brushes $380
• sub-total $2,684

Total $5,252

2) adjustment to tools:

Dr Cost of goods sold 180

Cr Inventory: tools 180

adjustment to paint products:

Dr Cost of goods sold 480

Cr Inventory: paint products 480

or

total adjustment to inventory account:

Dr Cost of goods sold 660

Cr Inventory 660