Question 1E - Intermediate Accounting (Kieso)

Question

The inventory of Oheto Company on December 31, 2017, consists of the following items. Part Quantity Cost per Unit Net Realizable Value 110 600 \( 95 \)100 111 1,000 60 52 112 500 80 76 113 200 170 180 120 400 205 208 121a 1,600 16 1 122 300 240 235 a Part No. 121 is obsolete and has a realizable value of $1 each as scrap. Instructions 1. Determine the inventory as of December 31, 2017, by the LCNRV method, applying this method to each item. 2. Determine the inventory by the LCNRV method, applying the method to the total of the inventory.

Step-by-Step Solution

Answer

(a) Value of inventory is $335,100. 

(b) Value of inventory is $341,300.

Schedule for LCNRV

Part No.	Quantity	Cost	Net realizable value	Total Cost	Total net realizable value	LCNRV
110	600	$95	$100	$57,000	$60,000	$57,000
111	1,000	60	52	60,000	52,000	52,000
112	500	80	76	40,000	38,000	38,000
113	200	170	180	34,000	36,000	34,000
120	400	205	208	82,000	83,200	82,000
121	1,600	16	1	25,600	1,600	1,600
122	300	240	235	72,000	70,500	70500
Totals				$370.600	$341,300	$335,100

Inventory value by each item basis

(a) The value of inventory as of December 31, 2017, per   LCNRV applied to each item equals $335,100.

Inventory value by the total inventory basis

(b) The total cost of the inventory equals $370,600, and the total net realizable value equals $341,300. Hence, per the LCNRV method, the value of inventory equals $341,300 as it is the lowest between the two.