he following information applies to the questions displayed below.] A local Chev
ID: 2525666 • Letter: H
Question
he following information applies to the questions displayed below.] A local Chevrolet dealership carries the following types of vehicles: Inventory Items Quantity Cost per Unit NRV per Unit Vans 2 $26,000 $24,000 Trucks 5 17,800 16,800 2-door sedans 1 12,800 14,800 4-door sedans 6 16,800 19,800 Sports cars 2 36,000 39,000 SUVs 7 29,600 27,000 Because of recent increases in gasoline prices, the car dealership has noticed a reduced demand for its SUVs, vans, and trucks.
1. Compute the total cost of the entire inventory.
2. Determine whether each inventory item would be reported at cost or net realizable value (NRV). Enter the Cost per Unit for the "Lower of Cost or net realizable value" and then multiply the quantity of each inventory item by the appropriate cost or NRV amount and enter it in the Total column.
3. Prepare necessary entry to write down inventory from cost to net realizable value. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
4. The write-down of inventory from cost to net realizable value reduces total assets and increases total expenses, leading to lower net income and lower retained earnings.
Explanation / Answer
Items Quantity Cost per unit NRV per unit
Vans 2 $26000 $24000
Trucks 5 $17800 $16800
2 door sedan 1 $12800 $14800
4 door sedans 6 $16800 $19800
Sports car 2 $36000 $39000
SUVs 7 $29600 $27000
1) Total cost of the entire inventory = (2*$26000) +(5*$17800) +(1*$12800) +(6*$16800) + (2*$36000) +(7*$29600)
= $52000+$89000+$12800+$100800+$72000+$207200=$533800
2) Each item will be reported at cost or net realizable value, whichever is lower.
items Quantity Cost per unit NRV per unit Lower of cost or NRV(per unit) Total
Vans 2 $26000 $24000 $24000 $48000
Trucks 5 $17800 $16800 $16800 $84000
2 door sedan 1 $12800 $14800 $12800 $12800
4 door sedan 6 $16800 $19800 $16800 $100800
Sports car 2 $36000 $39000 $36000 $72000
SUVs 7 $29600 $27000 $27000 $189000
Total $506600
3)
Items Journal Entry Total cost Total of lower of cost or NRV
Vans Debit: Loss of decline in NRV $4000 $52000 $48000
Credit : Inventory $4000
Trucks Debit: Loss of decline in NRV $5000 $89000 $84000
Credit : Inventory $5000
2 door sedan No Entry required $12800 $12800
4 door sedan No Entry required $100800 $100800
Sports car No Entry required $72000 $72000
SUVs Debit: Loss of decline in NRV $18200 $207200 $189000
Credit : Inventory $18200
4) This staement is true. Write down of inventory from cost to net realizable value reduces net income and retained earnings.
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