contestada

On April 1, a company purchased two units of inventory, A and B. The cost of unit A was $650, and the cost of unit B was $590. On April 30, the company had not sold the inventory. The net realizable value of unit A was now $665 while the net realizable value of unit B was $505. The adjustment associated with the lower of cost and net realizable value on April 30 will be:

Respuesta :

jepessoa

Answer:

The answer is:

  • Dr Cost of Goods Sold 70
  • Cr Merchandise Inventory 70

Explanation:

To determine the necessary adjustment we must calculate the difference between the net realizable values and the original purchase prices:

  • Product A: net realizable value - original purchase price = $665 - $650 = $15
  • Product B: net realizable value - original purchase price = $505 - $590 = -$85

Now we add both differences: $15 - $85 = -$70, since it's a negative number, the assets have lost value.

Since the assets have lost value, the Merchandise Inventory account should be credited (when assets decrease they are credited). The loss in value represents higher COGS, so the COGS account should be debited (when expenses increase they are debited).

      Dr Cost of Goods Sold 70

      Cr Merchandise Inventory 70

anthougo

To record the adjustment for the ending inventory on April 30 at the lower of cost and net realizable value (LCNRV), the journal entry is as follows:

Journal Entry:

April 30:

Debit Cost of goods $85

Credit Inventory $85

  • To record the reduction in the value of ending inventory

Data and Calculations:

                                       Inventory A    Inventory B    Total Cost

April 1, Cost per unit           $650             $590            $1,240

April 30, NRV                        665               505          

Ending Inventory based on

lower of cost and NRV =  $650             $505            $1,155

Adjustment for lower of cost and NRV = $85 ($1,240 - $1,155)

Data Analysis:

Loss of Value in Inventory (Cost of goods sold) $85  Inventory $85

Thus, the ending inventory on April 30 reduces by $85 to $1,155. This cost represents the lower of cost and net realizable value for Inventories A and B.

Learn more: https://brainly.com/question/15114096

Otras preguntas

Q&A Education