Question Completion:
Almaden Hardware Store sells two product categories, tools and paint products. Information pertaining to its 2018 year-end inventory is as follows:
Inventory, by Per Unit Net Realizable
Product Category Quantity Cost Value
Tools:
Hammers 100 $5.00 $5.50
Saw 200 10.00 9.00
Screwdrivers 300 2.00 2.60
Paint products:
1-gallon cans 500 6.00 5.00
Paint brushes 100 4.00 4.50
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:
<h3>Almaden Hardware Store</h3>
1. 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:
= $5,800
(b) product categories:
= $6,050
(c) total inventory:
= $6,080
2. Inventory write-down as a line item in the income statement, for each of the LCNRV applications for:
(a) individual products:
Debit Cost of goods sold $700
Credit Inventory $700
To record the inventory write down based on LCNRV.
(b) product categories:
Debit Cost of goods sold $450
Credit Inventory $450
To record the inventory write down based on LCNRV.
(c) total inventory:
Debit Cost of goods sold $420
Credit Inventory $420
To record the inventory write down based on LCNRV.
Explanation:
a) Data and Calculations:
Inventory, by Per Unit Net Realizable LCNRV Inventory
Product Category Quantity Cost Value Value
Tools:
Hammers 100 $5.00 $5.50 $5.00 $500
Saw 200 10.00 9.00 9.00 1,800
Screwdrivers 300 2.00 2.60 2.00 600
Paint products:
1-gallon cans 500 6.00 5.00 5.00 2,500
Paint brushes 100 4.00 4.50 4.00 400
Inventory amount (LCNRV rule applied to individual products) $5,800
Inventory amount (LCNRV rule applied to product categories)
Tools: Cost value = (100 * $5) + (200 * $10) + (300 * $2) = $3,100
NRV value = (100 * $5.50) + (200 * $9) + (300 * $2.60) = $3,130
LCNRV = $3,100 for tools
Paint products: Cost value = (500 * $6) + (100 * $4) = $3,400
NRV value = (500 * $5) + (100 * $4.50) = $2,950
LCNRV = $2,950 for paint products
Total LCNRV = $6,050 ($3,100 + $2,950)
Inventory amount (LCNRV rule applied to total inventory):
Cost value = (100 * $5) + (200 * $10) + (300 * $2) + (500 * $6) + (100 * $4)
= $6,500
NRV value = (100 * $5.50) + (200 * $9) + (300 * $2.60) + (500 * $5) + (100 * $4.50) = $6,080
Year-end Adjustments for each of the LCNRV applications in requirement 1:
(a) individual products:
Cost of Inventory = $6,500
LCNRV = 5,800
Inventory write down $700
(b) product categories:
Cost of Inventory = $6,500
LCNRV = 6,050
Inventory write down $450
(c) total inventory:
Cost of Inventory = $6,500
LCNRV = 6,080
Inventory write down $420
