In 2020, Rai Farms Limited, a farm equipment retailer, purchased new tractors from a local manufacturer, Blue Enterprise Blue sold the tractors to Rai Farms for a lump sum of $768,000 as they are planning on ceasing operations and wanted to clear their stock Three types of tractors were included in the transaction The three types and estimated selling price for each are as follows Type Number of Tractors Estimated Selling price per tractor Utility Tractor 10 $13,500 Backhoe Loader 21 $31,500 Track type Tractor 15 $21,000 Instructions Using the relative sales value method, what cost would be allocated to each type of tractor upon purchase Assume that at year end, Rai Farms had sold 6 utility tractors, 18 backhoe loaders, and 10 track type tractors Unfortunately, by year end, sales had declined significantly Rai Farms, worried new models on the market had disrupted the demand, believed they would have to sell the remaining utility tractors at 80 of the estimated selling price, and the remaining backhoe loader and track type tractor at 50 of the estimated selling price Costs to sell are negligible What is the net realizable value of the remaining inventory What inventory value should be reported at December 31, 2020

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 07, 2024

In 2020, Rai Farms Limited, a farm equipment retailer, purchased new tractors from a local manufacturer, Blue Enterprise. Blue sold the tractors to Rai Farms

In 2020, Rai Farms Limited, a farm equipment retailer, purchased new tractors from a local manufacturer, Blue Enterprise. Blue sold the tractors to Rai Farms for a lump sum of $768,000 as they are planning on ceasing operations and wanted to clear their stock. Three types of tractors were included in the transaction. The three types and estimated selling price for each are as follows:

Type	Number of Tractors	Estimated Selling price per tractor
Utility Tractor	10	$13,500
Backhoe Loader	21	$31,500
Track-type Tractor	15	$21,000

Instructions:

Using the relative sales value method, what cost would be allocated to each type of tractor upon purchase?

Assume that at year end, Rai Farms had sold 6 utility tractors, 18 backhoe loaders, and 10 track- type tractors. Unfortunately, by year end, sales had declined significantly. Rai Farms, worried new models on the market had disrupted the demand, believed they would have to sell the remaining utility tractors at 80% of the estimated selling price, and the remaining backhoe loader and track-type tractor at 50% of the estimated selling price. Costs to sell are negligible. What is the net realizable value of the remaining inventory? What inventory value should be reported at December 31, 2020?