Salvo Company uses the FIFO method of valuating its year-end inventory. The following is the inventory data at year end, December 31, 2020. 

Inventory         Unit Cost       Unit Market                                       

 Commodity               Quantity            Price               Price                      

 Aquarius                        20                 $ 80                $ 92             

 Capricorn                      50                  70                  65             

 Leo                                  8                  300                 280                

 Scorpio                         30                  40                  30             

 Taurus                         100                   90                   94             

 

Per accounting requirement for year-end reporting, inventory has to be valued based on the lower of cost or market (LCM) method of the GAAP of Conservatism Principle. 

 

Required:

1) Using the lower of cost or market (LCM) valuation method, determine the total inventory value of the above based on item valuation. Show all working.  

2) Prepare journal entry to write-down the inventory value, if any, for the year.

3) Assume that sales revenue was $118,000 and the cost of goods sold was $72,000 for the year before the write-down of inventory based on LCM method. 

a)  What was the gross profit before the write-down of inventory value?

b)   What was the gross profit after the write-down of inventory value?