Question

Knowledge Check 01 Tune Store reports inventory using the lower of cost and net realizable value (NRV). Information related to its year-end inventory appears below. Inventory Quantity Unit Cost Unit NRV Model A 100 $ 100 $ 120 Model B 50 50 40 Model C 20 200 210 Calculate the amount to be reported for ending inventory of Model A.

Answer 1

Answer:

Ending Inventory = $10,000

Explanation:

Calculating the ending inventory using the lower of cost and net realizable value (NRV):

It means we have to take the inventory cost, which is lower between the original cost and net realizable value. Therefore, for Model A -

Inventory Quantity × Unit Cost (Cost or NRV which is lower) = Total ending inventory cost

100 × $ 100 = $10,000

(We have used the original cost as it is lower than NRV cost)