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. Product Quantity Unit Cost Unit Replacement Cost Unit Selling Price A 1,000 $ 17 $ 19 $ 23 B 700 22 18 25 C 1,000 10 9 15 D 900 14 11 13 E 600 21 19 20 The cost to sell for each product consists of a 15 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. 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.

Explanation / Answer

1 Answer :-

2 a) Answer :- Inventory carrying value would be $52050 the lower of aggregate inventory cost ($67600) and aggregate inventory market ($52050). The amount of the loss from inventory write-down is $15550 ($67600 - $52050).

Product NRV Per unit NRV -NP Per unit A $23 -(15%×$23) = $19.55 $19.55 - (40%×$23) = $10.35 B $25 - (15%×$25) = $21.25 $21.25 - (40%×$25) = $11.25 C $15 - (15%×$15) = $12.75 $12.75 - (40%×$15) = $6.75 D $13 - (15%×$13) = $11.05 $11.05 - (40%×$20) = $5.85 E $20 - (15% × $20) = $17 $17 - (40%×$20) = $9.00

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