Question

Tatum Company has four products in its inventory. Information about the December 31, 2021, inventory is as follows: Product Total Cost Total Net Realizable Value 101 $ 122,000 $ 101,000 102 91,000 111,000 103 61,000 51,000 104 31,000 51,000 Required: 1. Determine the carrying value of inventory at December 31, 2021, assuming the lower of cost or net realizable value (LCNRV) rule is applied to individual products. 2. Assuming that inventory write-downs are common for Tatum Company, record any necessary year-end adjusting entry.

Answer 1

Answer and Explanation:

1. The computation of carrying value of inventory is shown below:-

Product   Cost          NRV     Inventory Value which is lesser

101         $122000   $101,000   $101,000    

102        $91,000     $111,000    $91,000    

103        $61,000      $51,000    $51,000    

104        $31,000       $51,000   $31,000      

Total      $305,000 $314,000    $274,000  

2. The Journal entry is shown below:-

a. Cost of Goods sold Dr, $31,000  

       To Inventory $31,000

(Being write off inventory is recorded)

b. Loss on inventory write off Dr, $31,000  

          To Inventory $31,000

(Being write off inventory is recorded)