E8.8 (LO 2) (Valuation at Net Realizable Value) Mt. Horeb Alpaca Co. has a herd of 150 alpaca.

The alpaca are sheared once a quarter to harvest valuable wool that is used in designer sweaters.

Mt. Horeb has the following information related to the alpaca herd at July 1, 2025, and during the first quarter of the fiscal year.

Alpaca Carrying value (equal to net realizable value), July 1, 2025 $120,000 Change in fair value due to growth and price changes 7,700 Decrease in fair value due to harvest (975)

Alpaca wool harvested during the first quarter (at net realizable value) 13,000 Instructions

a. Prepare the journal entries for Mt. Horeb’s biological asset (Alpaca herd) for the first quarter.

b. Prepare the journal entries for the Alpaca wool harvested in the first quarter.

c. Prepare the journal entry when the Alpaca wool is sold for $14,500.

d. Briefly discuss the impact on income of the following events related to the alpaca biological asset:
(1) a female alpaca gives birth to a baby alpaca, and (2) an older alpaca can only be sheared once every other quarter due to irritation caused by repeated shearing over its life.