Almaden Hardware Store sells two distinct types of products, tools and paint pro
ID: 2445951 • Letter: A
Question
Almaden Hardware Store sells two distinct types of products, tools and paint products. Information pertaining to its 2016 year-end inventory is as follows:
Determine the book value of inventory at year-end, assuming the lower of cost and net realizable value rule is applied to (a) individual products, (b) product type, and (c) total inventory.
Assuming that the company reports an inventory write-down as a line item in the income statement, for each of the lower of cost and net realizable value applications determine the amount of the loss.
Almaden Hardware Store sells two distinct types of products, tools and paint products. Information pertaining to its 2016 year-end inventory is as follows:
Explanation / Answer
1. Calculation of book value of inventory at year-end:
a) Assuming the lower of cost and net realizable value rule is applied to individual products
Product
Quantity
Per Unit Cost
Net Realizable Value
Lower
Book Value
A
B
C
D = Lower of B or C
A*D
Hammers
120
$ 4.00
$ 4.50
$ 4.00
$ 480.00
Saws
100
$ 9.00
$ 8.00
$ 8.00
$ 800.00
Screwdrivers
200
$ 1.00
$ 1.60
$ 1.00
$ 200.00
1-gallon cans
400
$ 5.00
$ 4.00
$ 4.00
$ 1,600.00
Paint brushes
120
$ 3.00
$ 3.50
$ 3.00
$ 360.00
Book value of inventory at year-end
$ 3,440.00
b) Assuming the lower of cost and net realizable value rule is applied to Product Types
Inventory, by Product Type
Quantity
Per Unit Cost
Net Realizable Value (NRV)
Total Cost
Total NRV
Book Value
A
B
C
D= A*B
E = A*C
Lower of D or E
Tools:
Hammers
120
$ 4.00
$ 4.50
$ 480.00
$ 540.00
Saws
100
$ 9.00
$ 8.00
$ 900.00
$ 800.00
Screwdrivers
200
$ 1.00
$ 1.60
$ 200.00
$ 320.00
Total Tools
$ 1,580.00
$ 1,660.00
$ 1,580.00
Paint products:
1-gallon cans
400
$ 5.00
$ 4.00
$ 2,000.00
$ 1,600.00
Paint brushes
120
$ 3.00
$ 3.50
$ 360.00
$ 420.00
Total Paint products
$ 2,360.00
$ 2,020.00
$ 2,020.00
Book value of inventory at year-end
$ 3,600.00
C) Assuming the lower of cost and net realizable value rule is applied to Total Inventory
Inventory
Quantity
Per Unit Cost
Net Realizable Value (NRV)
Total Cost
Total NRV
Book Value
A
B
C
D= A*B
E = A*C
Lower of D or E
Hammers
120
$ 4.00
$ 4.50
$ 480.00
$ 540.00
Saws
100
$ 9.00
$ 8.00
$ 900.00
$ 800.00
Screwdrivers
200
$ 1.00
$ 1.60
$ 200.00
$ 320.00
1-gallon cans
400
$ 5.00
$ 4.00
$ 2,000.00
$ 1,600.00
Paint brushes
120
$ 3.00
$ 3.50
$ 360.00
$ 420.00
Total Inventory
$ 3,940.00
$ 3,680.00
$ 3,680.00
Book value of inventory at year-end
$ 3,680.00
2) Calculation of Amount of loss for writing off the inventory
a) Assuming the lower of cost and net realizable value rule is applied to individual products
Total Cost of the inventory Products
$ 3,940.00
Less: Book Value of inventory
$ 3,440.00
Amount of loss for writing off the inventory
$ 500.00
b) Assuming the lower of cost and net realizable value rule is applied to Product Types
Total Cost of the inventory Products
$ 3,940.00
Less: Book Value of inventory
$ 3,600.00
Amount of loss for writing off the inventory
$ 340.00
C) Assuming the lower of cost and net realizable value rule is applied to Total Inventory
Total Cost of the inventory Products
$ 3,940.00
Less: Book Value of inventory
$ 3,680.00
Amount of loss for writing off the inventory
$ 260.00
1. Calculation of book value of inventory at year-end:
a) Assuming the lower of cost and net realizable value rule is applied to individual products
Product
Quantity
Per Unit Cost
Net Realizable Value
Lower
Book Value
A
B
C
D = Lower of B or C
A*D
Hammers
120
$ 4.00
$ 4.50
$ 4.00
$ 480.00
Saws
100
$ 9.00
$ 8.00
$ 8.00
$ 800.00
Screwdrivers
200
$ 1.00
$ 1.60
$ 1.00
$ 200.00
1-gallon cans
400
$ 5.00
$ 4.00
$ 4.00
$ 1,600.00
Paint brushes
120
$ 3.00
$ 3.50
$ 3.00
$ 360.00
Book value of inventory at year-end
$ 3,440.00
b) Assuming the lower of cost and net realizable value rule is applied to Product Types
Inventory, by Product Type
Quantity
Per Unit Cost
Net Realizable Value (NRV)
Total Cost
Total NRV
Book Value
A
B
C
D= A*B
E = A*C
Lower of D or E
Tools:
Hammers
120
$ 4.00
$ 4.50
$ 480.00
$ 540.00
Saws
100
$ 9.00
$ 8.00
$ 900.00
$ 800.00
Screwdrivers
200
$ 1.00
$ 1.60
$ 200.00
$ 320.00
Total Tools
$ 1,580.00
$ 1,660.00
$ 1,580.00
Paint products:
1-gallon cans
400
$ 5.00
$ 4.00
$ 2,000.00
$ 1,600.00
Paint brushes
120
$ 3.00
$ 3.50
$ 360.00
$ 420.00
Total Paint products
$ 2,360.00
$ 2,020.00
$ 2,020.00
Book value of inventory at year-end
$ 3,600.00
C) Assuming the lower of cost and net realizable value rule is applied to Total Inventory
Inventory
Quantity
Per Unit Cost
Net Realizable Value (NRV)
Total Cost
Total NRV
Book Value
A
B
C
D= A*B
E = A*C
Lower of D or E
Hammers
120
$ 4.00
$ 4.50
$ 480.00
$ 540.00
Saws
100
$ 9.00
$ 8.00
$ 900.00
$ 800.00
Screwdrivers
200
$ 1.00
$ 1.60
$ 200.00
$ 320.00
1-gallon cans
400
$ 5.00
$ 4.00
$ 2,000.00
$ 1,600.00
Paint brushes
120
$ 3.00
$ 3.50
$ 360.00
$ 420.00
Total Inventory
$ 3,940.00
$ 3,680.00
$ 3,680.00
Book value of inventory at year-end
$ 3,680.00
2) Calculation of Amount of loss for writing off the inventory
a) Assuming the lower of cost and net realizable value rule is applied to individual products
Total Cost of the inventory Products
$ 3,940.00
Less: Book Value of inventory
$ 3,440.00
Amount of loss for writing off the inventory
$ 500.00
b) Assuming the lower of cost and net realizable value rule is applied to Product Types
Total Cost of the inventory Products
$ 3,940.00
Less: Book Value of inventory
$ 3,600.00
Amount of loss for writing off the inventory
$ 340.00
C) Assuming the lower of cost and net realizable value rule is applied to Total Inventory
Total Cost of the inventory Products
$ 3,940.00
Less: Book Value of inventory
$ 3,680.00
Amount of loss for writing off the inventory
$ 260.00
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