Question

The inventory of Ohio Company on December 31, 2017, consists of the following items

Part	Quantity	Cost per unit	Net Realizable Value per unit
110	600	$95	$100
111	1,000	60	52
112	500	80	76
113	200	170	180
120	400	205	208
121	1,600	16	1
122	300	240	235

Part No. 121 is obsolete and as a result has a realizable value of $1 each as scrap.

1. Determine the inventory as of December 31, 2017, by the LCNRV method, applying this method to each item.
2. Determine the inventory by the LCNRV method, applying the method to the total of the inventory
3. Prepare journal entry required at December 31, 2017 assuming that inventory is recorded at LCNRV (individual item basis) and a perpetual inventory system.

Answer 1

*GAAP require that inventory be valued at the lesser amount of its laid-down cost and the amount for which it can likely be sold—its net realizable value(NRV). This concept is known as the lower of cost and Net realizable value, (LCNRV).

a*

Part	Quantity	Cost per unit	NRV per unit	LCNRV	LCNRV-unit basis
110	600	$                  95	$                100	$                          95	$                   57,000
111	1000	$                  60	$                  52	$                          52	$                   52,000
112	500	$                  80	$                  76	$                          76	$                   38,000
113	200	$                170	$                180	$                       170	$                   34,000
120	400	$                205	$                208	$                       205	$                   82,000
121	1600	$                  16	$                    1	$                            1	$                     1,600
122	300	$                240	$                235	$                       235	$                   70,500
					$                335,100

Ending Inventory under LCNRV method-Each item, $335,100.

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b.

Part	Quantity	Cost per unit	NRV per unit	Cost-Group Wise	NRV-Group Wise
110	600	$                  95	$                100	$                 57,000	$                   60,000
111	1000	$                  60	$                  52	$                 60,000	$                   52,000
112	500	$                  80	$                  76	$                 40,000	$                   38,000
113	200	$                170	$                180	$                 34,000	$                   36,000
120	400	$                205	$                208	$                 82,000	$                   83,200
121	1600	$                  16	$                    1	$                 25,600	$                     1,600
122	300	$                240	$                235	$                 72,000	$                   70,500
				$               370,600	$                341,300

W.e. is lower, Then, $341,300

Ending Inventory under LCNRV method-Group item, $341,300.

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c.

Account Info	Debit	Credit
Cost of goods sold	6200
Merchandise Inventory		6200
(To adjsut inventory to LCNRV)[$3,35,100-3,41,300]

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