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:

	ENDING INVENTORY, CURRENT YEAR
Item	Quantity on Hand	Unit Cost When Acquired (FIFO)	Net Realizable Value (Market) at Year-End
A	30	$ 20	$ 15
B	55	40	44
C	35	52	55
D	15	27	32

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?

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.

Item	Quantity	Total Cost	Total Net Realizable Value	Lower of Cost or NRV
A	30
B	55
C	35
D	15
Total	$0	$0	$0

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