Teal Mountain, Inc. values its inventory at the lower-of-LIFO-cost-or-market. Th

Question

Teal Mountain, Inc. values its inventory at the lower-of-LIFO-cost-or-market. The following information is available from the company's inventory records as of December 31, 2017. Completion & Disposal Cost/Unit Normal Profit Margin/Unit Estimated Price/Unit $16.24 10.32 36.60 2.97 16.18 Unit Replacement Selling Item Quantity Cost Cost/Unit x490 11,832 $14.50 13.86 X512 5,742 8.12 x682 20,880 22.04 Z195 14,500 16.53 Z846 9,976 13.92 8.70 21.58 16.24 14.79 $3.48 0.29 3.77 1.62 2.44 $3.94 2.09 10.44 6.67 1.28 Calculate the lower-of-cost-or-market using the individual-item approach Lower-of-Cost-or-Market (Per unit basis) X490 x512 X682 X195 X846

Explanation / Answer

Calculation of lower of cost or market price Item Quantity Unit Cost Market value Stock valuation at (I) (H) (G) lower of G or H = (J) X490                         11,832                            14.50                            12.76                               12.76 X512                            5,742                              8.12                              8.70                                 8.12 X682                         20,880                            22.04                            22.39                               22.04 Z195                         14,500                            16.53                            16.24                               16.24 Z846                            9,976                            13.92                            13.74                               13.74 1. Determination of market value Item Estimated selling price / Unit Completion & Disposal Cost Net realisable value Upper limit Normal profit margin /unit NRV Lower Limit Replacement cost / Unit Market value (A) (B) (C=A-B) (D) (E=C-D) (F) (G) X490 16.24 3.48 12.76                                 3.94                              8.82                            13.86 12.76 X512 10.32 0.29 10.03                                 2.09                              7.94                              8.70 8.7 X682 36.6 3.77 32.83                               10.44                            22.39                            21.58 22.39 Z195 22.97 1.62 21.35                                 6.67                            14.68                            16.24 16.24 Z846 16.18 2.44 13.74                                 1.28                            12.46                            14.79 13.74 For calculation of Market value following formulas are used If Replacement cost (F) > NRV (C) than NRV is Market Value If Replacement cost (F) NRV Lower limit (E) than Replacement cost is Market Value Calculation for written down of inventory Item Quantity Unit Cost Stock valuation rate Total cost Stock valuation Net impact (I) (H) Per unit (J) K = (I*H) L = (I*J) M = K-L X490                         11,832                            14.50                            12.76                          171,564                       150,976                         20,588 X512                            5,742                              8.12                              8.12                            46,625                         46,625                                   -   X682                         20,880                            22.04                            22.04                          460,195                       460,195                                   -   Z195                         14,500                            16.53                            16.24                          239,685                       235,480                            4,205 Z846                            9,976                            13.92                            13.74                          138,866                       137,070                            1,796                         26,588 Entry for written down of inventory Cost of good sold method: Debit Credit Cost of good sold                         26,588 Inventories                            26,588 Loss Method: Debit Credit Loss on valuation of inventory                         26,588 Inventories                            26,588

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