Forest Company has five products in its inventory. Information about ending inventory follows. Unit Replacement Unit Selling Price Cost $ 16 18 8 6 13 Product Quantity Unit Cost A 1,000 $ 10 B C с D E 800 600 200 600 15 3 7 14 $ 12 11 2 4 12 The cost to sell for each product consists of a 15 percent sales commission. The normal profit for each product is 40 percent of the selling price. Required: 1. Determine the carrying value of ending inventory, assuming the lower of cost or market (LCM) rule is applied to individual products. 2. Determine the carrying value of inventory, assuming the LCM rule is applied to the entire inventory. 3. Assuming inventory write-downs are common for Forest, record any necessary year-end adjusting entry based on the amount calculated in requirement 2.

Forest Company has five products in its inventory. Information about ending inventory follows. Unit Replacement Unit Selling Price Cost $ 16 18 8 6 13 Product Quantity Unit Cost A 1,000 $ 10 B C с D E 800 600 200 600 15 3 7 14 $ 12 11 2 4 12 The cost to sell for each product consists of a 15 percent sales commission. The normal profit for each product is 40 percent of the selling price. Required: 1. Determine the carrying value of ending inventory, assuming the lower of cost or market (LCM) rule is applied to individual products. 2. Determine the carrying value of inventory, assuming the LCM rule is applied to the entire inventory. 3. Assuming inventory write-downs are common for Forest, record any necessary year-end adjusting entry based on the amount calculated in requirement 2.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Inventory Accounting

Inventory accounting is that branch of accounting that helps in determining the specific value of assets at different stages of production and development.

Question

Forest Company has five products in its inventory. Information about ending inventory follows.
Product Quantity Unit Cost
A
1,000
B
800
с
600
D
200
E
600
$ 10
15
3
7
14
Unit Replacement Unit Selling
Cost
Price
$ 16
18
8
6
13
$ 12
11
2
4
12
The cost to sell for each product consists of a 15 percent sales commission. The normal profit for each product is 40 percent of the
selling price.
Required:
1. Determine the carrying value of ending inventory, assuming the lower of cost or market (LCM) rule is applied to individual
products.
2. Determine the carrying value of inventory, assuming the LCM rule is applied to the entire inventory.
3. Assuming inventory write-downs are common for Forest, record any necessary year-end adjusting entry based on the amount
calculated in requirement 2.

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Step 1: Inventory valuation:

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Step 2: (1) Determine the carrying value of inventory under the lower of cost or market (LCM) rule :

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Step 3: (2) Determine the carrying value of inventory at December 31, 2021 on entire inventory:

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Step 4: (3) Record the necessary year-end adjusting entry:

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