Question

Company has four products in its inventory. Information about the December 31, 2021, inventory is as follows: Product Total Cost Total Replacement Cost Total Net Realizable Value 101 $ 139,000 $ 127,100 $ 115,500 102 103,600 97,800 126,600 103 69,000 46,000 57,900 104 34,900 32,600 58,400 The normal profit is 40% of total cost. Required: 1. Determine the carrying value of inventory at December 31, 2021, assuming the lower of cost or market (LCM) 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:

The calculation is shown below:

Explanation:

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

Product   Total Cost Total Replacement Cost Total Net Realizable Value   Lower value

101         $139,000     $127,100    $115,500        $115,500

102        $103,600     $97,800    $126,600        $97,800

103        $69,000      $46,000    $57,900          $46,000

104        $34,900      $32,600    $58,400           $32,600

Total     $346,500                                                 $291,900

b. Now the journal entry is

In the case of immaterial

Cost of goods sold  $54,600   ($346,500 - $291,900)

      To Inventory  $54,600

(Being the write off inventory is recorded)

In the case of material

Loss on inventory write off $54,600   ($346,500 - $291,900)

      To Inventory  $54,600

(Being the write off inventory is recorded)