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Problem 7: Inventory impairment - LCNRV and LCM The accountant of Sun Shine Ltd. compiled the following information about its inventories on December 31, 2017.

Problem 7: Inventory impairment - LCNRV and LCM

The accountant of Sun Shine Ltd. compiled the following information about its inventories on December 31, 2017. The selling cost is 12% of the selling price. The normal profit margin is 20% of the selling price.

Cost

Selling Price

Replacement Cost

Beauty Products A

$160,000

$200,000

$180,000

Beauty Products B

$160,000

$180,500

$120,000

Personal Care Products A

$168,000

$189,000

$163,000

Personal Care Products b

$135,000

$165,000

$145,000

Baby, Kids, and Toys

$114,000

$125,000

$126,000

Required:

Part 1. Determine the amount of inventory to be reported on the 12/31/2017 balance sheet when the lower of cost or NRV rule is applied

(1) by individual line of products,

(2) by major category of products (I.e., beauty products, personal care products, and baby/kids products),

(3) by entire inventory.

Part 2. Prepare the adjusting entry when the rule is applied by individual line of products.

Part 3. Determine the amount of inventory to be reported on the 12/31/2017 balance sheet when the lower of cost or market rule is applied

(1) by individual line of products, and (2) by entire inventory.

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