Question

Almaden Hardware Store sells two product categories, tools and paint products. Information pertaining to its 2021 year-end inventory is as follows:
Inventory,by Product Category Quantity Per Unit Cost Net Realizable Value
Tools:
Hammers 120 $5.50 $6.00
Saws 250 10.50 9.50
Screwdrivers 350 2.50 3.10
Paint products:
1-gallon cans 550 6.50 5.50
Paint brushes 120 4.50 5.00
Required:
1. Determine the carrying value of inventory at year-end, assuming the lower of cost or net realizable value (LCNRV) rule is applied to (a) individual products, (b) product categories, and (c) total inventory.
2. Assuming inventory write-downs are common for Almaden, record any necessary year-end adjustment amount for each of the LCNRV applications in requirement 1.

Answer 1

Answer:

Product category        units           cost          NRV   year-end inventory

Tools:

• Hammers             120            $5.50        $6.00            $660
• Saws                    250           $10.50       $9.50          $2,375
• Screwdrivers       350            $2.50        $3.10             $875

Paint products:

• 1-gallon cans       550            $6.50        $5.50         $3,025
• Paint brushes      120             $4.50        $5.00            $540

1) carrying value of year-end inventory:

Tools:                        

• Hammers               $660
• Saws                    $2,375
• Screwdrivers          $875
• sub-total               $3,910

Paint products:        

• 1-gallon cans      $3,025
• Paint brushes        $540
• sub-total             $3,565

Total                            $7,475

2) adjustment to tools:

Dr Cost of goods sold 250

    Cr Inventory: tools 250

adjustment to paint products:

Dr Cost of goods sold 550

    Cr Inventory: paint products 550

or total adjustment to inventory account:

Dr Cost of goods sold 800

    Cr Inventory 800