Sanchez Company was formed on January 1 of the current year and is preparing the annual financial statements dated December 31, current year. Ending inventory information about the four major items stocked for regular sale follows: Item A B C D ENDING INVENTORY, CURRENT YEAR Quantity on Hand 24 59 39 14 Required 1 Required 2 Required: 1. Compute the valuation that should be used for the current year ending inventory using lower of cost or net realizable value applied on an item-by-item basis. A B C D Unit Cost When Net Realizable Value Acquired (FIFO) (Market) at Year-End $ 19 48 59 36 2. What will be the effect of the write-down of inventory to lower of cost or net realizable value on cost of goods sold for the year ended December 31, current year? Complete this question by entering your answers in the tabs below. 24 59 39 14 $14 44 Total Net Item Quantity Total Cost Realizable Value Total 61 31 Compute the valuation that should be used for the current year ending inventory using lower of cost or net realizable value applied on an item-by-item basis. Lower of Cost or NRV

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.