E7-13 (Algo) Reporting Inventory at Lower of Cost or Net Realizable Value L07-4 Sanchez Company was formed on January 1 of the current year and is preparing the annual financial statements dated December 31 , current year. Ending inventory information about the four major items stocked for regular sale follows: Required: 1. Compute the valuation that should be used for the current year ending inventory using lower of cost or net realizable value applied on an item-by-item basis. 2. What will be the effect of the write-down of inventory to lower of cost or net realizable value on cost of goods sold for the year ended December 31, current year? \begin{tabular}{|c|c|c|c|c|} \hline Item & Quantity & Total Cost & \begin{tabular}{c} Total Net \\ Realizable \\ Value \end{tabular} & \begin{tabular}{c} Lower of \\ Cost or \\ NRV \end{tabular} \\ \hlineA & 28 & & & \\ \hlineB & 63 & & & \\ \hline C & 43 & & & \\ \hlineD & 18 & & & \\ \hline \multicolumn{2}{|r|}{ Total } & $ & $ & $ \\ \hline \end{tabular} Required 1 Required 2 What will be the effect of the write-down of inventory to lower of cost or net realizable value on cost of goods sold for the year ended December 31 , current year? The write-down to lower of cost or net realizable value will cost of goods sold expense by the amount of the write-down