Question

Peterson Furniture Designs is preparing the annual financial statements dated December 31. Ending inventory information about the five major items stocked for regular sale follows:

Item Quantity Unit Cost Market Value LCM per Total LCM Recorded
on Hand When Acquired at Year Item Total Cost
(FIFO)


Alligator-
Armoires 70 $46 $41 $3,220
Bear-
Bureaus 85 80 80 6,800
Cougar-
Credenzas 10 90 92 900
Dingo-
Cribs 35 35 35 1,225
Elephant-
Dressers 400 15 12 6,000

Prepare the journal entry Peterson Furniture Designs would record on December 31 to write down its inventory to LCM/NRV.

Answer 1

Answer:

Journal entry

31 December  Debit Inventory write_down (loss) 1550, Credit inventory 1550

Explanation:

Inventory is accounted for at the lower of cost or net realizable value. inventory write_ down is impairment  a loss to the organisation

there can never be a gain when revaluing inventory,  either it remains at cost or goes down with NRV

                                                                     cost           market         write down

closing inventory calculation

Alligator   ( 70 units)                                   3220           2870               350

Bear   (85 units)                                           6800        6800                  0

Cougar ( 10 units)                                        900            920                   0

Dingo ( 35 units)                                         1225             1225                 0

Elephant ( 400 units )                                 6000           4800                1200

                                                                    18145            16615              1550

COUGAR has a high market value so we value it at cost because it is the lower of the two.

Answer 2

The Journal entry will includes a Debit to Inventory write down (loss) for $1550 and Credit to inventory for $1550

What is Inventory?

This  is accounted for at the lower of cost or net realizable value.

The inventory write down is impairment and loss to the organisation

Particulars                                            Cost        Market     Write down

Closing inventory calculation

Alligator   (70 units)                              3220         2870             350

Bear   (85 units)                                    6800         6800               0

Cougar (10 units)                                   900           920                 0

Dingo (35 units)                                     1225          1225                0

Elephant (400 units)                              6000         4800             1200

Total                                                       18145         16615            1550

In conclusion, the Journal entry will includes a Debit to Inventory write down (loss) for $1550 and Credit to inventory for $1550

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