Question

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	$	146,000		$	133,400		$	121,200
102		108,600			102,500			132,700
103		72,300			48,200			60,800
104		36,700			34,300			61,500

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

SOLUTION

1. Carrying Value at December 31, 2018 = $327,300

Product	Cost ($)	Net Realizable Value ($)	Inventory ($)
101	146,000	121,200	121,200	whichever is less
102	108,600	132,700	108,600	whichever is less
103	72,300	60,800	60,800	whichever is less
104	36,700	61,500	36,700	whichever is less
	363,600	376,200	327,300

2.

S.No.	Accounts titles and Explanation	Debit ($)	Credit ($)
1.	Cost of Goods sold (363,600-327,300)	36,300
	Inventory		36,300
	(To write off inventory)
2.	Loss on inventory write off	36,300
	Inventory		36,300
	(To write off inventory)