(Lower-of-cost-or-market) Fortner Co. follows the practice ofvaluing its invento
ID: 2454164 • Letter: #
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(Lower-of-cost-or-market) Fortner Co. follows the practice ofvaluing its inventory at the lower-of-cost-or-market. The following info is available fromthe companys inventory records as of Dec 31,2006. Estimated completion Normal Unit Replacement Selling & Disposal Profit Item Quantity Cost Cost/Unit Price/Unit Cost/ Unit Margin/Unit A 1100 7.50 8.40 10.50 1.50 1.80 B 800 8.20 8.00 9.40 0.90 1.20 C 1000 5.60 5.40 7.20 1.10 0.60 D 1000 3.80 4.20 6.30 0.80 1.50 E 1400 6.40 6.30 6.80 0.70 1.00 Instructions: Finn Berge is an accounting clerk inthe accounting department of Fortner Co., and he cannot understand why the market value keepschanging from replacement cost to net realizable value to something that he cannot even figureout. Finn is very confused, and he is the one whorecords inventory purchases and calculatesending inventory. You are the manger of the department and an accountant. a) Calculate thelower-of-cost-or-market using the "individual item" approach b) Show the journal entry he will needto make in order to write down the ending inventory from cost to market. c) Then write a memo to Finn explainingwhat designated market value is as well as how it is computed. Use your calculations toaid in your explanation. (Lower-of-cost-or-market) Fortner Co. follows the practice ofvaluing its inventory at the lower-of-cost-or-market. The following info is available fromthe companys inventory records as of Dec 31,2006. Estimated completion Normal Unit Replacement Selling & Disposal Profit Item Quantity Cost Cost/Unit Price/Unit Cost/ Unit Margin/Unit A 1100 7.50 8.40 10.50 1.50 1.80 B 800 8.20 8.00 9.40 0.90 1.20 C 1000 5.60 5.40 7.20 1.10 0.60 D 1000 3.80 4.20 6.30 0.80 1.50 E 1400 6.40 6.30 6.80 0.70 1.00 Instructions: Finn Berge is an accounting clerk inthe accounting department of Fortner Co., and he cannot understand why the market value keepschanging from replacement cost to net realizable value to something that he cannot even figureout. Finn is very confused, and he is the one whorecords inventory purchases and calculatesending inventory. You are the manger of the department and an accountant. a) Calculate thelower-of-cost-or-market using the "individual item" approach b) Show the journal entry he will needto make in order to write down the ending inventory from cost to market. c) Then write a memo to Finn explainingwhat designated market value is as well as how it is computed. Use your calculations toaid in your explanation.Explanation / Answer
(Lower-of-cost-or-market) Fortner Co. follows the practice ofvaluing its invento
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