Question

Sandals Company is preparing the annual financial statements dated December 31. Ending inventory is presently recorded at its total cost of $7,500. Information about its inventory items follows:

Product Line	Quantity on Hand			Unit Cost When Acquired (FIFO)			Value at Year-End
Air Flow		95		$	25		$	31
Blister Buster		15			70			65
Coolonite		15			45			43
Dudesly		85			40			48

1) . Compute the LCM/NRV write-down per unit and in total for each item in the table. Also compute the total overall write-down for all items.

Product Line	Quantity on Hand	Write-down per item	Total Write-down
Air Flow	95
Blister Buster	15
Coolonite	15
Dudesly	85
Total

2) How will the write-down of inventory to lower of cost or market/net realizable value affect the company’s expenses reported for the year ended December 31?

Cost of goods sold will be _____

by_____

• Required 1
• Required 2
• Required 3

3) Compute the amount that should be reported for the inventory on December 31, after the LCM/NRV rule has been applied to each item.

Written-down inventory______

Answer 1

Workin Note
Product line	Quantity (Z)	Unit cost (a)	Vale at Year End (b)	Value as per LCM (c=Lower a or b)	Total value as per LCM (Zxc)	Total cost (Zxa)	Written Down per Item (a-c)
Air flow	95	$25.00	$31.00	$25.00	$2,375.00	$2,375.00	$0.00
Blister Buster	15	$70.00	$65.00	$65.00	$975.00	$1,050.00	-$5.00
Coolonite	15	$45.00	$43.00	$43.00	$645.00	$675.00	-$2.00
Dudesly	85	$40.00	$48.00	$40.00	$3,400.00	$3,400.00	0
Total					$7,395.00	$7,500.00

Part-1
Product line	Quantity (a)	Written Down per Item (b)	Total Written Down (aXb)
Air flow	95	0	0
Blister Buster	15	-5	-75
Coolonite	15	-2	-30
Dudesly	85	0	0
Total			-105

Part-2 Cost of Goods Sold will be increased by $105

Part-3 Ending inventory reported in inventory will be $7395