Forester Company has five products in its inventory. Information about the December 31, 2021, inventory follows. Product Quantity Unit Cost Unit Replacement Cost Unit Selling Price A 1,000 $ 14 $ 16 $ 20 B 800 19 15 22 C 700 7 6 12 D 600 11 8 10 E 800 18 16 17 The cost to sell for each product consists of a 15 percent sales commission. The normal profit for each product is 35 percent of the selling price. Required: 1. Determine the carrying value of inventory at December 31, 2021, assuming the lower of cost or market (LCM) rule is applied to individual products. 2. Determine the carrying value of inventory at December 31, 2021, assuming the LCM rule is applied to the entire inventory. 3. Assuming inventory write-downs are common for Forester, record any necessary year-end adjusting entry based on the amount calculated in requirement 2.

Forester Company

1. The carrying value of inventory at December 31, 2021, assuming the LCM rule is applied to individual products, is:

= $47,800

2. The carrying value of inventory at December 31, 2021, assuming the LCM rule is applied to the entire inventory, is:

= $49,800

3. Assuming inventory write-downs are common for Forester, the necessary year-end adjusting entry based on requirement 2 is:

Debit Cost of goods sold (Inventory write-down) $5,200

Credit Inventory $5,200

To write down the inventory value from $55,000 (purchase costs) to $49,800 (replacement costs).

Explanation:

a) Data and Calculations:

Product  Quantity  Unit Cost  Unit Replace-  Unit Selling   LCM Value

                                                  ment Cost           Price

  A           1,000          $ 14             $ 16                $ 20    $14,000 ($14*1,000)

  B             800              19                15                   22       12,000 ($12*800)

  C             700               7                  6                   12         4,200 ($6*700)

  D             600              11                  8                   10         4,800 ($8*600)

  E             800              18                16                   17        12,800 ($16*800)

Total      3,900                                                                 $47,800

Total costs = (1,000*$14 + 800*$19 + 700*$7 + 600*$11 + 800*$18)

= ($14,000 + 15,200 + 4,900 + 6,600 + 14,400)

= $55,000

Tota replacement costs = (1,000*$16 + 800*$15 + 700*$6 + 600*$8 + 800*$16)

= ($16,000 + 12,000 + 4,200 + 4,800 + 12,800)

= $49,800

Total market value = (1,000*$20 + 800*$22 + 700*$12 + 600*$10 + 800*$17)

= ($20,000 + 17,600 + 8,400 + 6,000 + 13,600)

= $65,600

Total cost = $55,000

Total replacement cost = $49,800

Inventory write-down = $5,200

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