Question

Sandals Company is preparing the annual financial statements dated December 31. Ending inventory is presently recorded at its total cost of $10,250. Information about its inventory items follows:

Product Line	Quantity on Hand			Unit Cost When Acquired (FIFO)			Value at Year-End
Air Flow		25		$	90		$	92
Blister Buster		15			80			76
Coolonite		70			20			13
Dudesly		60			90			96

Required:

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	25	$0	$0
Blister Buster	15
Coolonite	70
Dudesly	60
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?

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.

Answer 1

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 25 $0 $0 Blister Buster 15 4 15*4 = 60 Coolonite 70 7 70*7 = 490 Dudesly 60 0 0 Total 550

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?

Write down = $550

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.

Amount reported = 10250-550 = 9700