Question

A home improvement store carries the following items:

Inventory Items	Quantity	Cost per Unit			NRV per Unit
Hammers	110	$	6		$	7
Saws	60		11			9
Screwdrivers	120		3			2
Drills	50		22			21
1-gallon paint cans	150		5			6
Paint brushers	170		7			8

Required: ALL PARTS ANSWERED

1. Compute the total cost of inventory.

2. Determine whether each inventory item would be reported at cost or net realizable value. Multiply the quantity of each inventory item by the appropriate cost or NRV amount and place the total in the “Lower of Cost and NRV” column.

3. Prepare necessary entry to write down inventory from cost to net realizable value.

4. The write-down of inventory from cost to net realizable value reduces total assets and increases total expenses, leading to lower net income and lower retained earnings.

1.

Compute the total cost of inventory.

	Total cost

2.)

Determine whether each inventory item would be reported at cost or net realizable value. Multiply the quantity of each inventory item by the appropriate cost or NRV amount and place the total in the “Total” column.

Lower of Cost and NRV	Cost or NRV	Lower of Cost or NRV per unit	Total
Hammers
Saws
Screwdrivers
Drills
1-gallon paint cans
Paint brushers
Total

3.)

record the adjusting entry for inventory

Transaction	General Journal	Debit	Credit
1

4.)

The write-down of inventory from cost to net realizable value reduces total assets and increases total expenses, leading to lower net income and lower retained earnings.

true or false

Answer 1

1.

Inventory items	Quantity	Cost per unit	Total
Hammers	110	$6	$660
Saws	60	11	660
Screwdrivers	120	3	360
Drills	50	22	1,100
1-gallon paint cans	150	5	750
Paint brushers	170	7	1,190
Total costs			$4,720

2.

Lower of cost and NRV	Cost or NRV	Lower of cost and NRV per unit	Total
Hammers	Cost	$6	$660
Saws	NRV	9	540
Screwdrivers	NRV	2	240
Drills	NRV	21	1,050
1-gallon paint cans	Cost	5	750
Paint brushers	Cost	7	1,190
Total			$4,430

3.

Transaction	General Journal	Debit	Credit
1	Cost of goods sold ($4,720-4,430)	$290
	Inventory		$290

4. True