2 Case Study #2-Chapter 9A Problem 5 THE WILDCAT COMPANY 7 The Wildcat Company h

Question

2 Case Study #2-Chapter 9A Problem 5 THE WILDCAT COMPANY 7 The Wildcat Company has five products in its inventory. 9 Information about the December 31, 2017, inventory is as follows: 10 Unit Cost Unit Selling Price 12 Quantity 1,000 800 600 200 Product 14 15 16 17 18 19 20 The cost to sell for each product consists of a 15% sales commission. 21 22 Requirement 1: 10.0016.00 18.00 8.00 6.00 13.00 15.00 3.00 7.00 14.00 Determine the total carrying value of inventory at December 31, 2017, assuming the lower 23 of cost and net realizable value rule is applied to individual products. 24 25 Requirement 2: Determine the total carrying of inventory at December 31, 2017, assuming the lower of cost and net realizable value rule is applied to the entire inventory. Also, assuming inventory write-downs are usual business practice for Wildcat Company, rLord any necessary year- 26 end adjusting entry. 27

Explanation / Answer

REQUIREMENT 1: CALCULATION OF THE TOTAL CARRYING VALUE WITH LCM ON INDIVIDUAL PRODUCT Product Quantity Unit Cost (A) Unit Selling price Net Selling price (Selling price X 100/115) (B) Lower of unit cost or net selling price ('C) Inventory Value (Quantity X C) A 1000 $                             10 16 $                           13.91 $                       10 $                     10,000 B 800 $                             15 18 $                           15.65 $                       15 $                     12,000 C 600 $                               3 8 $                             6.96 $                          3 $                       1,800 D 200 $                               7 6 $                             5.22 $                    5.22 $                       1,043 E 600 $                             14 13 $                           11.30 $                 11.30 $                       6,783 total $                     31,626 REQUIREMENT 2: CALCULATION OF THE TOTAL CARRYING VALUE WITH LCM ON ALL PRODUCT A B C D E Product Quantity Unit Cost (A) Unit Selling price Net Selling price (Selling price X 100/115) (B) Lower of unit cost or net selling price ('C) Inventory Value (Quantity X C) (quantity X Unit Cost A 1000 $                             10 16 $                           13.91 $                       10 $                     10,000 $                     10,000 B 800 $                             15 18 $                           15.65 $                       15 $                     12,000 $                     12,000 C 600 $                               3 8 $                             6.96 $                          3 $                       1,800 $                       1,800 D 200 $                               7 6 $                             5.22 $                    5.22 $                       1,043 $                       1,400 E 600 $                             14 13 $                           11.30 $                 11.30 $                       6,783 $                       8,400 total $                     31,626 $                     33,600 Difference of D Coloumn & E Coloumn = $                 1,974 So the inventory value is reduced with $ 1974 Journal Entries Date Account Title and explanation Debit Credit ---- Loss on LCM adjustment $                     1,974     To Inventory $                       1,974 (To record the difference in LCM and cost)

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