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 30 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.

Product Quantity Unit
Cost Unit
Replacement
Cost Unit
Selling
Price A 900 $ 11 $ 13 $ 17 B 500 16 12 19 C 900 4 3 9 D 600 8 5 7 E 700 15 13 14

Explanation / Answer

Req 1 Product NRV per unit NRV-NP per unit A $17 - (20% x $17) = $13.60 $13.60 - (30% x $17) = $8.50 B $19 - (20% x $19) = $15.20 $15.20 - (30% x $19) = $9.50 C $ 9 - (20% x $9) = $ 7.20 $ 7.20 - (30% x $ 9) = $4.50 D $ 7 - (20% x $7) = $ 5.60 $ 5.60 - (30% x $ 7) = $3.50 E $14 - (20% x $14) = $11.20 $11.20 - (30% x $14) = $7.00 (1) (2) (3) (4) (5) Ceiling Floor Designated Market Value Inventory Value [Middle value of (1), (2) & (3)] [Lower of (4) and (5)] Product (units) RC NRV NRV-NP    Cost A (900) $11,700 $12,240 $7,650 $11,700 $9,900 $9,900 B (500) 6,000 7,600 4,750 6,000 8,000 6,000 C (900) 2,700 6,480 4,050 4,050 3,600 3,600 D (600) 3000 3360 2100 3000 4,800 3000 E (700) 9,100 7,840 4,900 7,840 10,500 7,840 Totals $32,590 $36,800 $30,340 Inventory carrying value would be $28,030. Req 2a Inventory carrying value would be $32,590, the lower of aggregate inventory cost ($36,800) and aggregate inventory market ($32,590). The amount of the loss from inventory write-down is $4,210 ($36,800 - 32,590). 2b Loss from write down of inventory $                                                  4,210 Inventory $             4,210

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