Forester Company has five products in its inventory. Information about the Decem
ID: 2537078 • Letter: F
Question
Forester Company has five products in its inventory. Information about the December 31, 2018, inventory follows.
The cost to sell for each product consists of a 10 percent sales commission. The normal profit percentage for each product is 40 percent of the selling price.
Required:
1. Determine the carrying value of inventory at December 31, 2018, assuming the lower of cost or market (LCM) rule is applied to individual products.
2a. Determine the carrying value of inventory at December 31, 2018, assuming the LCM rule is applied to the entire inventory.
2b. Assuming inventory write-downs are usual business practice for Forester, record any necessary year-end adjusting entry.
Determine the carrying value of inventory at December 31, 2018, assuming the lower of cost or market (LCM) rule is applied to individual products. (Do not round intermediate calculations.)
Determine the carrying value of inventory at December 31, 2018, assuming the LCM rule is applied to the entire inventory. (Do not round intermediate calculations.)
Assuming the inventory write-downs are usual business practice for Forester, record any necessary year-end adjusting entry. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
1. Record any necessary year-end adjusting entry assuming that inventory write-downs are common for Forester Company.
Note: Enter debits before credits.
Product Quantity UnitCost Unit
Replacement
Cost Unit
Selling
Price A 900 $ 16 $ 18 $ 22 B 1,000 21 17 24 C 900 9 8 14 D 1,000 13 10 12 E 900 20 18 19
Explanation / Answer
40% of Sale Product Quantity Unit Cost Unit Replacement Cost Unit Selling Price Profit PU Unit Cost*Qty A 900 16.00 18.00 22.00 8.80 14400 B 1000 21.00 17.00 24.00 9.60 21000 C 900 9.00 8.00 14.00 5.60 8100 D 1000 13.00 10.00 12.00 4.80 13000 E 900 20.00 18.00 19.00 7.60 18000 74500 A Ceiling Floor Product (units) RC NRV NRV-NP Market Cost Inventory Value at Cost Inventory Value at Market Inventory Value Used A (900) 18.00 19.80 11.00 18.00 16.00 14,400 16200 14,400 Cost B (1000) 17.00 21.60 12.00 17.00 21.00 21,000 17000 17,000 Market C (900) 8.00 12.60 7.00 8.00 9.00 8,100 7200 7,200 Market D (1000) 10.00 10.80 6.00 10.00 13.00 13,000 10000 10,000 Market E (900) 18.00 17.10 9.50 17.10 20.00 18,000 15390 15,390 Market Total 74,500 65,790 63,990 B Inventory Value at Cost Inventory Value at Market Total Level 74,500 65,790 Minimum Value 65,790 C Entry in Case of Individual Valuation: Loss on LCM Adjustment Account Dr. 10,510 To Finished Goods Inventory 10,510 Entry in Case of Total Level Valuation: Loss on LCM Adjustment Account Dr. 8,710 To Finished Goods Inventory 8,710