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Chapter 9: Question 2E (page 476)

Riegel Company uses the LCNRV method, on an individual-item basis, in pricing its inventory items. The inventory at December 31, 2017, consists of products D, E, F, G, H, and I. Relevant per unit data for these products appear below. Item DE F GH I Estimated selling price \(120 \)110 \(95 \)90 \(110 \)90 Cost 75 80 80 80 50 36 Cost to complete 30 30 25 35 30 30 Selling costs 10 18 10 20 10 20 Instructions Using the LCNRV rule, determine the proper unit value for balance sheet reporting purposes at December 31, 2017, for each of the inventory items above.

Short Answer

Expert verified

The value of inventory for item D, E, F,G, H, and I equals $75, $62, $60, $35, $50, and $36 respectively.

Step by step solution

01

Calculation of net realizable value

Net realizable value is calculated as follows:


Item

D

E

F

G

H

I

Estimated selling price

$120

$110

$95

$90

$110

$90

Less: Cost to complete

30

30

25

35

30

30

Less: Cost to sell

10

18

10

20

10

20

Net realizable value

$80

$62

$60

$35

$70

$40

02

Calculation of LCNRV

LCNRV for each item is calculated as follows:


Item

D

E

F

G

H

I

Cost

$75

$80

$80

$80

$50

$36

Net realizable value

80

62

60

35

70

40

LCNRV

$75

$62

$60

$35

$50

$36

Thus, the inventory value for item D equals $75, item E equals $62, item F equals $60, item G equals $35, item H equals $50, and item I equals $36.

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Most popular questions from this chapter

Question:Refer to the data in IFRS9-8 for Keyser’s Fleece Inc. Prepare the journal entries for (a) the wool harvested in the first six months of 2017, and (b) the wool harvested that is sold for $10,500 in July 2017.

Question:In some instances, accounting principles require a departure from valuing inventories at cost alone. Determine the proper unit inventory price in the following cases, under the lower-of-cost-or-market rule. Cases 1 2 3 4 5 Cost \(15.90 \)16.10 \(15.90 \)15.90 $15.90 Net realizable value 14.50 19.20 15.20 10.40 16.40 Net realizable value less normal profit 12.80 17.60 13.75 8.80 14.80 Market (replacement cost) 14.80 17.20 12.80 9.70 16.80

Presented below is information related to Langston Hughes Corporation. Price LIFO Index Cost Retail Inventory on December 31, 2017, when dollar-value LIFO is adopted 100 \(36,000 \) 74,500 Inventory, December 31, 2018 110 ? 100,100 Instructions Compute the ending inventory under the dollar-value LIFO method at December 31, 2018. The cost-to-retail ratio for 2018 was 60%.

Dover Company began operations in 2017 and determined its ending inventory at cost and at LCNRV at December 31, 2017, and December 31, 2018. This information is presented below. Cost Net Realizable Value 12/31/17 \(346,000 \)322,000 12/31/18 410,000 390,000 Instructions (a) Prepare the journal entries required at December 31, 2017, and December 31, 2018, assuming inventory is recorded at LCNRV and a perpetual inventory system using the cost-of-goods-sold method. (b) Prepare journal entries required at December 31, 2017, and December 31, 2018, assuming inventory is recorded at LCNRV and a perpetual system using the loss method. (c) Which of the two methods above provides the higher net income in each year?

Question:Under what circumstances is relative sales value an appropriate basis for determining the price assigned to inventory?
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