Answered: A home improvement store, like Lowe’s,…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter6: Cost Of Goods Sold And Inventory

Section: Chapter Questions

Problem 18DQ: What is the effect on the current period income statement and the balance sheet when inventories are...

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A home improvement store, like Lowe’s, carries the following items:

Inventory Items	Quantity	Unit Cost	Unit NRV
Hammers	100	$6.80	$7.30
Saws	50	9.80	8.80
Screwdrivers	130	1.80	2.40
Drills	40	24.80	21.60
One-gallon paint cans	160	5.30	4.80
Paintbrushes	180	5.80	6.30

Required:

1. Compute the total cost of inventory.
2. Determine whether each inventory item would be reported at cost or net realizable value, and then place that unit amount in the “Lower of Cost and NRV per unit” column. Multiply the quantity of each inventory item by the appropriate cost or NRV unit amount and place the total in the “Total” column.
3. Record any necessary adjusting entry to write down inventory from cost to net realizable value.
4. Determine the financial statement effects of using lower of cost and net realizable value to report inventory.

Determine the financial statement effects of using lower of cost and net realizable value to report inventory. (Make sure to enter amounts leadi
account reduction with a minus sign.)
Revenues
Income Statement:
Expenses
Net Income
Balance Sheet:
Stockholders'
Assets
Liabilities
Equity

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