Problem 3: LCNRV and LCM The accountant of Sun Shine Ltd. compiled the following

Question

Problem 3: LCNRV and LCM The accountant of Sun Shine Ltd. compiled the following information about its inventories on December 31, 2017, The selling cost is 12% of the selling price. The normal profit margin is 20% of the selling price. Selling Price Replacement Cost Cost $160,000 $200,000 $160,000 $180,500 Beauty Products A Beauty Products B Personal Care Products A $168,000 $189,000 Personal Care Products b $135,000 $165,000 Baby, Kids, and Toys $180,000 $120,000 $163,000 $145,000 $126,000 $114,000 $125,000 Required Part 1. Determine the amount of inventory to be reported on the 12/31/2017 balance sheet when the lower of cost or NRV rule is applied (1) by individual line of products, (2) by major category of products (l.e., beauty products, persona care products, and baby/kids products) (3) by entire inventory Part 2. Prepare the adjusting entry when the lower of cost or NRV rule is applied by individual line of products. Determine the amount of inventory to be reported on the 12/31/2017 balance sheet when the lower of cost or market rule is applied (1) by individual line of products, (2) by entire inventory

Explanation / Answer

Part1

1. Individual line of product

Inventory to be reported on 12/31/2017 is 730160

2. Major category of products

Inventory to be reported on 12/31/2017 is 733000.

3 By entire inventory

inventory to be reported on 12/31/2017 is 737000.

Part 2

Journal entry

Loss for decline in NRV a/c dr...6840

To Inventory 6840

(being decline in inventory recorded)

By individual line of products

inventory to be reported on 12/31/2017 is 692000.

Entire inventory

  inventory to be reported on 12/31/2017 is 734000

Particulars Cost NRV Inventory amount beauty product A 160000 176000 160000 beauty product B 160000 158840 158840 Personal care products A 168000 166320 166320 Personal care products B 135000 145200 135000 Baby, kids & toys 114000 110000 110000 Total 737000 756360 730160

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