Question

A company reports inventory using the lower of cost and net realizable value. Below is information related to its year-end inventory: Inventory Quantity Cost NRV Unit A 14 $ 38 $ 40 Unit B 22 42 39 Unit C 16 27 31 Unit D 19 18 17 a. Calculate ending inventory under the lower of cost and net realizable value. b. Prepare the necessary adjusting entry to inventory. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

Answer:

Explanation:

a. The computation of the ending inventory is shown below:

Inventory Quantity Cost  NRV   LCM     Total inventory

 (1)                                                  (2)          (1 × 2)

Unit A         14         $38   $40    $38         $532  

 Unit B         22       $42   $39    $39        $858

 Unit C         16        $27   $31     $27        $432

 Unit D         19        $18    $17      $17         $323

Total                                                            $2,145

And total cost = Unit A × cost + Unit A × cost + Unit A × cost  + Unit A × cost

= 14 × $38 + 22 × $42 + 16 × $27 + 19 × $18

= $532 + $924 + $432 + $342

= $2,230

b. The journal entry is shown below:

Income summary A/c Dr $85 ($2,230 - $2,145)

  To Inventory A/c $85

(Being inventory is adjusted)