At year end, the XYZ Company had the following information available: Item Cost
ID: 2550860 • Letter: A
Question
At year end, the XYZ Company had the following information available:
Item
Cost
Replacement Cost
Sales Price
Net Realizable Value (NRV)
Normal Profit
A
70,000
62,500
64,000
56,000
5,100
B
86,000
79,400
94,000
84,800
7,400
C
112,000
124,000
186,400
168,300
18,500
D
140,000
126,000
154,800
140,000
15,400
Total
408,000
391,900
499,200
449,100
46,400
The Allowance to Reduce Inventory to Net Realizable Value (NRV) has a credit balance of $27,500, prior to any required adjusting entry.
Determine the proper balance in the Allowance to Reduce Inventory to Market at year end:
Determine the amount of the gain or loss that should be recorded due to the change in the Allowance to Reduce Inventory to Market:
Using the attached T-account template, prepare the entry to recognize the gain or loss due to the change in the Allowance to Reduce Inventory to Market:
Item
Cost
Replacement Cost
Sales Price
Net Realizable Value (NRV)
Normal Profit
A
70,000
62,500
64,000
56,000
5,100
B
86,000
79,400
94,000
84,800
7,400
C
112,000
124,000
186,400
168,300
18,500
D
140,000
126,000
154,800
140,000
15,400
Total
408,000
391,900
499,200
449,100
46,400
Explanation / Answer
Allowance at year end = Inventory Cost - LCM Valuation = $ 408,000 - $ 373,400 = $ 34,600.
Adjusting Entry:
Item Cost Replacement Cost NRV ( Ceiling) Normal Profit NRV less Normal Profit ( Floor) LCM $ $ $ $ $ $ A 70,000 62,500 56,000 5,100 50,900 56,000 B 86,000 79,400 84,800 7,400 77,400 79,400 C 112,000 124,000 168,300 18,500 149,800 112,000 D 140,000 126,000 140,000 15,400 124,600 126,000 408,000 391,900 449,100 46,400 402,700 373,400Related Questions
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