Question

Scott’s Sporting Stores Inc. reported the following cost and net realizable value for inventory at Dec 31:

Item Units Unit cost Unit NVR

Skates

Bauer 14 $262 $404

CCM 11 $433 $374

Running shoes

Adidas 5 $118 $118

Puma 8 $117 $111

A) Calculate the ending inventory balance for skates and running shoes using the lower cost and net realizable value for each item.

B) Calculate the ending inventory balance for skates and running shoes using the historical unit costs provided.

C) Compare the difference in the ending inventory amounts. Which amount provides a more faithful representation of the inventory value?

Answer 1

Lower of cost or NRV
SKATES
ITEM	UNIT	UNIT COST	NRV	LOWER OF COST OR NRV
BAUER	14	262	404	3668
CCM	11	433	374	4114
TOTAL VALUE OF ENDING INVENTORY	25			7782
RUNNING SHOES
ADIDAS	5	118	118	590
PUMA	8	117	111	888
TOTAL	13			1478
TOTAL VALUE OF INVENTORY	38			9260
Historical cost method
SKATES
ITEM	UNIT	UNIT COST	total Historical cost
BAUER	14	262	3668
CCM	11	433	4763
TOTAL VALUE OF ENDING INVENTORY	25		8431
RUNNING SHOES
ADIDAS	5	118	590
PUMA	8	117	936
TOTAL	13		1526
TOTAL VALUE OF INVENTORY	38		9957
difference in inventory	9957-9260	697
lower of cost or NRV is a better option