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Forester Company has five products in its inventory. Information about the December 31, 2018, inventory follows. Product Quantity Unit Cost Unit Replacement Cost Unit Selling Price A 1,000 $ 26 $ 28 $ 32 B 500 31 27 34 C 900 19 18 24 D 900 23 20 22 E 800 30 28 29 The...

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Accounting

Forester Company has five products in its inventory. Informationabout the December 31, 2018, inventory follows.

ProductQuantityUnit
Cost		Unit
Replacement
Cost		Unit
Selling
Price
A1,000$26$28$32
B500312734
C900191824
D900232022
E800302829


The cost to sell for each product consists of a 10 percent salescommission. The normal profit percentage for each product is 35percent of the selling price.

Required:
1. Determine the carrying value of inventory atDecember 31, 2018, assuming the lower of cost or market (LCM) ruleis applied to individual products.
2a. Determine the carrying value of inventory atDecember 31, 2018, assuming the LCM rule is applied to the entireinventory.
2b. Assuming inventory write-downs are usualbusiness practice for Forester, record any necessary year-endadjusting entry.

Answer & Explanation Solved by verified expert
3.9 Ratings (537 Votes)

1 Calculate carrying value of inventory assuming LCM rule is applied to individual products as follows
Product Units Replacement Cost Ceiling NRV Floor NRV- Net Profit Designated Market Value -D Cost Inventory Value
A B C (Middle value of A,B and C E Lower of D and E
A 1000 28*1000=28000 32*90%*1000=28800 28.8-11.2*1000=17600 28000 1000*26=26000 26000
B 500 27*500=13500 34*90%*500=15300 30.6-11.9*500=9350 13500 500*31=15500 13500
C 900 18*900=16200 24*90%*900=19440 21.6-8.4*900=11880 16200 900*19=17100 16200
D 900 20*900=18000 22*90%*900=17820 19.8-7.7*900=10890 17820 900*23=20700 17820
E 800 28*800=22400 29*90%*800=20880 26.1-10.15*800=12760 20880 800*30=24000 20880
Total 96400 103300 94400
2-a Inventory carrying value when the LCM rule is applied to entire inventory is lower of cost and market value
which is 103300 and 96400 respectively.Therefore the inventory carrying value will be $96400
b Prepare the adjusting entry
Date Account Title Debit-$ Credit-$
Cost of Goods Sold-103300-96400 6900
Inventory 6900
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