Question
1. Firm A has five products in its inventory. The cost to sell each product consists of a 20% sales commission. The normal profit margin
1. Firm A has five products in its inventory. The cost to sell each product consists of a 20% sales commission. The normal profit margin for each product is 30% of selling price. As of December 31, 2021, the following information pertains to Firm As inventory: Unit Replacement Selling Product Quantity Cost Cost Price A 500 10.00 12.00 18.00 B 650 15.00 14.00 20.00 C 800 6.00 8.00 9.00 D 725 10.00 7.00 10.00 E 600 8.00 10.00 12.00
a. Assume Firm A applies the Lower of Cost or Net Realizable Value (LCNRV) rule at an individual product level. What is the total value of inventory reported using this approach? Does Firm A need to write-down its inventory? If so, what is the amount of the write-down? b. Assume Firm A applies the Lower of Cost or Market (LCM) rule at an individual product level. What is the total value of inventory reported using this approach? Does Firm A need to write-down its inventory? If so, what is the amount of the write-down? c. Assume the amount of inventory write-down is $15,000. Prepare the adjusting journal entry needed if write-downs are common for Firm A:
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