Home Stop sells two product categories, furniture and accessories. Information p

Question

Home Stop sells two product categories, furniture and accessories. Information pertaining to its 2018 year-end inventory is as follows: Inventory, by Product Category Quantity Per Unit Cost Market Furniture: Chairs 30 $ 30 $ 36 Desks 70 78 63 Tables 40 89 97 Accessories: Rugs 60 65 53 Lamps 80 27 23 Required: 1. Determine the carrying value of inventory at year-end, assuming the lower of cost or market (LCM) rule is applied to (a) individual products, (b) product categories, and (c) total inventory. 2. Assuming that the company reports an inventory write-down as a line item in the income statement, for each of the LCM applications determine the amount of the loss.

Explanation / Answer

1. Applied to Individual Product Product Qty Cost per unit Total cost NRV Total NRV Valuation Chairs 30 30 900 36 1080 900 Desk 70 78 5460 63 4410 4410 Tables 40 89 3560 97 3880 3560 Rugs 60 65 3900 53 3180 3180 Lamps 80 27 2160 23 1840 1840 Total cost 15980 Total valuation 13890 Hence, Ending inventory valued at $ 13890 Loss on valuation of inventory = Cost price- valuation price = 15980-13890 = $ 2,090 2. Applied to Product categories Product Qty Cost per unit Total cost NRV Total NRV Chairs 30 30 900 36 1080 Desk 70 78 5460 63 4410 Tables 40 89 3560 97 3880 Total cost 9920 Total NRV 9370 Rugs 60 65 3900 53 3180 Lamps 80 27 2160 23 1840 Total cost 6060 Total NRV 5020 Valuation of ending inventory Furniture(9920 or 9370, less)   $ 9370 Accessories( 6060 or 5020, less) $ 5020 Total Ending inventory              $ 14390 Loss on valution = Total cost - valuation = 15980-14390 = $ 1590 3. Applied to Total Inventory Product Qty Cost per unit Total cost NRV Total NRV Chairs 30 30 900 36 1080 Desk 70 78 5460 63 4410 Tables 40 89 3560 97 3880 Rugs 60 65 3900 53 3180 Lamps 80 27 2160 23 1840 Total cost 15980 Total NRV 14390 Valuation of Ending inventory (Cost or NRV, less)         $ 14390 Loss on valuation = Total cost - Valuation =15980-14390= $ 1590

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