Question

Product	Cost	Replacement cost	NRV	NRV - NP	Market	Inventory Value
101	$152,000	$138,800
102	113,000	106,700
103	75,300	50,200
104	38,300	35,700
Totals	$378,600					$0

Tatum Company has four products in its inventory. Information about the December 31, 2018, inventory is as follows:

Product	Total Cost			Total Replacement Cost			Total Net Realizable Value
101	$	152,000		$	138,800		$	126,200
102		113,000			106,700			138,100
103		75,300			50,200			63,400
104		38,300			35,700			64,100

The normal gross profit percentage is 35% of total cost.

Required:
1. Determine the carrying value of inventory at December 31, 2018, 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

1)

Product	replacement cost	NRV	NRV-NP	market(middle of RC, NRC OR (NRV-NP)	cost	inventory value
101	138800	126200	73000	126200	152000	126200
102	106700	138100	98550	106700	113000	106700
103	50200	63400	37045	50200	75300	50200
104	35700	64100	50695	50695	38300	38300
Total					378600	321400

2)

Journal	debit	credit
Loss due to decline in NRV of inventory	57200
To allowance to reduce inventory to NRV		57200
(378600(cost) - 321400(NRV) = 57200

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