Question

Olson Metrics Ltd. has been the dominant firm in its field. The company's most popular product has been the Model T, which carries a retail price of $370. The Model T costs $270 per unit to produce. Recently, the company introduced a new version, Model A, priced at $400. When the Model A was released, Olson reduced the retail price of the remaining 1,000 units of Model T to $320. Despite the price reduction, the demand for the Model T dropped sharply. Therefore, Olson decided to sell 600 of the remaining units on consignment through FloorMart Inc. as a private label product at $240 per unit. FloorMart will collect a commission of 20% per unit. Olsen willl lower the price of the remaining 400 units in inventory to $300. Required: Prepare any journal entry(ies) that are necessary to record the effects of the above information. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer is given below

Please note for inventory write down it can be done by directly reducing inventory or creating allowance account

Units 600 Cost $270 Total cost $162,000 A NRV Units | 600 NRV $192 Total NRV $115,200 B Inventory will be value at lower of Cost or NRV Loss on Inventory write-down $46,800|A-B Net realisable value (NRV) is estimated selling price less any reasonable expenses to sell the inventory Balance 400 units management intends to sell at $300. Hence it is not below cost and not write down needed

	Date	Journal	Debit	Credit
		Loss on Inventory	$46,800
		To Inventory (or Allowance for Inventory value reduction)		$46,800
		(Being inventory write down value recorded)