Lower of cost and net realizable value
Response to the following problem:
Almaden Hardware Store sells two distinct types of products, tools and paint products. Information pertaining to its 2016 year-end inventory is as follows:
|
Inventory,
by Product Type
|
Quantity
|
Per Unit
Cost
|
Net Realizable
Value
|
|
Tools:
|
|
|
|
|
Hammers
|
100
|
$ 5.00
|
$5.50
|
|
Saws
|
200
|
10.00
|
9.00
|
|
Screwdrivers
|
300
|
200
|
2.60
|
|
Paint products. gallon cans
|
500
|
6.00
|
5.00
|
|
Paint brushes
|
100
|
4.00
|
4.50
|
Required:
1. Determine the book value of inventory at year-end, assuming the lower of cost and net realizable value rule is applied to (a) individual products, (b) product type, and (c) total inventory.
2. Assuming that the company reports an inventory write-down as a line item in the income statement, for each of the lower of cost and net realizable value applications determine the amount of the loss.