Question

Almaden Hardware Store sells two product categories, tools and paint products. Information pertaining to its 2021 year-end inventory is as follows:
Inventory,by Product Category Quantity Per Unit Cost Net Realizable Value
Tools:
Hammers 120 $5.50 $6.00
Saws 250 10.50 9.50
Screwdrivers 350 2.50 3.10
Paint products:
1-gallon cans 550 6.50 5.50
Paint brushes 120 4.50 5.00
Required:
1. Determine the carrying value of inventory at year-end, assuming the lower of cost or net realizable value (LCNRV) rule is applied to (a) individual products, (b) product categories, and (c) total inventory.
2. Assuming inventory write-downs are common for Almaden, record any necessary year-end adjustment amount for each of the LCNRV applications in requirement 1.

Answer 1

Answer:

Product category        units           cost          NRV   year-end inventory

Tools:

• Hammers             120            $5.50        $6.00            $660
• Saws                    250           $10.50       $9.50          $2,375
• Screwdrivers       350            $2.50        $3.10             $875

Paint products:

• 1-gallon cans       550            $6.50        $5.50         $3,025
• Paint brushes      120             $4.50        $5.00            $540

1) carrying value of year-end inventory:

Tools:                        

• Hammers               $660
• Saws                    $2,375
• Screwdrivers          $875
• sub-total               $3,910

Paint products:        

• 1-gallon cans      $3,025
• Paint brushes        $540
• sub-total             $3,565

Total                            $7,475

2) adjustment to tools:

Dr Cost of goods sold 250

    Cr Inventory: tools 250

adjustment to paint products:

Dr Cost of goods sold 550

    Cr Inventory: paint products 550

or total adjustment to inventory account:

Dr Cost of goods sold 800

    Cr Inventory 800

Answer 2

Inventory is the part of current assets held by the business organization to perform their business operations. The inventory is the working current asset as it keeps on moving with the sale of goods. There are various methods to determine the value of inventory such as FIFO, LIFO, and many more.

1. The carrying value of the inventory at year-end is $7,475

It is computed in the image attached below.

2. The journal entries for the adjustment amount of the year-end for each LCNRV is attached in the image below:

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