Forester Company has five products in its inventory. Information about the Decem

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 20 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.

RC, NRV, NRV-NP, MARKET,COST, INVENTORY VALUE

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.

Product Quantity Unit
Cost Unit
Replacement
Cost Unit
Selling
Price A 900 $ 29 $ 31 $ 35 B 900 34 30 37 C 900 22 21 27 D 900 26 23 25 E 1,000 33 31 32

Explanation / Answer

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.

RC, NRV, NRV-NP, MARKET,COST, INVENTORY VALUE `

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.

Product Quantity Unit Cost Inventory Unit Replacement Cost Unit Selling Price carrying value of inventory Closing Inventory cost Loss on Inventory a b c=a*b d e f= Lower of (e,b) g=f*a h=c-g A 900 $      29 $26,100 $                   31 $         35 $ 29 $ 26,100 $         -   B 900 $      34 $30,600 $                   30 $         37 $ 30 $ 27,000 $ 3,600 C 900 $      22 $19,800 $                   21 $         27 $ 21 $ 18,900 $      900 D 900 $      26 $23,400 $                   23 $         25 $ 23 $ 20,700 $ 2,700 E 1,000 $      33 $33,000 $                   31 $         32 $ 31 $ 31,000 $ 2,000 $ 9,200

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