Question 2BE - Intermediate Accounting (Kieso)

Question

Floyd Corporation has the following four items in its ending inventory. Item Cost Net Realizable Value (NRV) Jokers \(2,000 \)2,100 Penguins 5,000 4,950 Riddlers 4,400 4,625 Scarecrows 3,200 3,830 Determine the following: (a) the LCNRV for each item, and (b) the amount of write-down, if any, using (1) an item-by-item LCNRV evaluation and (2) a total category LCNRV evaluation

Step-by-Step Solution

Answer

The LCNRV for item-by-item basis equals $14,550, and per total category, it equals $14,600.

The written in case of item-by-item basis equals $50, and per total category, it equals $0.

Calculation of LCNRV for item-by-item basis and total category basis

(a) (1 & 2) LCNRV is calculated as follows:

Item	Cost	NRV	LCNRV
Item-by-Item	Total Category
Jokers	$2,000	$2,100	$2,000
Penguins	5,000	4,950	4,950
Riddlers	4,400	4,625	4,400
Scarecrows	3,200	3,830	3,200
Total	$14,600	$15,505	$14,550	$14,600

Calculation of amount written down as per the item-by-item basis.

(b) (1) 

Amount written down per item-by-item basis is calculated as follows: 

$\begin{array}{rcl}\mathrm{Amount} \mathrm{Written} \mathrm{Down} \mathrm{as} \mathrm{Per} \mathrm{Item} \mathrm{by} \mathrm{Item} \mathrm{basis} & =& \mathrm{Total} \mathrm{Cost}-\mathrm{LCNRV} \mathrm{as} \mathrm{Per} \mathrm{Item}-\mathrm{by} \mathrm{Item} \mathrm{basis}\\ & =& \$14,600-\$14,550\\ & =& \$50\end{array}$

Calculation of amount written down per total category basis

(b) (2) 

Amount written down per total category basis is calculated as follows: 

$\begin{array}{rcl}\mathrm{Amount} \mathrm{written} \mathrm{down} \mathrm{per} \mathrm{total} \mathrm{category} \mathrm{basis}& =& \mathrm{Total} \mathrm{Cost} -\mathrm{LCNRV} \mathrm{as} \mathrm{Per} \mathrm{Total} \mathrm{Category} \mathrm{basis}\\ & =& \$14,600-\$14,600\\ & =& \$0\end{array}$