Peterson Company is preparing the annual financial statements dated December 31, 2011. Ending inventory information about the five major items stocked for regular sale follows:

Required:
1. Compute the value of the 2011 ending inventory by using the LCNRV rule applied on an itemby-item basis. (Hint: Set up columns for item, quantity, total cost, total net realizable value, and LCNRV valuation.)
2. What will be the effect of the write-down of inventory to lower of cost and net realizable value on cost of sales for the year 2011 ?
3. Assume that 20 units of item \(E\) had not been sold by December 31,2012 , and that the net realizable value of that item increased to \(\$ 7.50\) per unit. How would this information be reflected in Peterson's income statement for 2012 and its statement of financial position at year-end? Explain.

Transcribed Image Text:

Item Quantity on Hand 50 Unit Cost When Acquired (FIFO) Ending Inventory Net Realizable Value at Year-End $15 $12 80 30 40 10 45 52 30 25 30 350 10 5 ABCDE