Reference no: EM133059167
Problem - Lego Ltd. uses a perpetual inventory system and has the following data available for inventory, purchases, and sales for a recent year:
Activity Units Purchase Price (per unit) Sales Price (per unit)
Beginning inventory 150 $5.50
Purchase 1, Jan. 15 675 6.00
Sale 1 (395) $10.80
Sale 2 (325) 11.00
Purchase 2, Mar. 20 690 6.10
Sale 3 (370) 11.00
Sale 4 (200) 11.50
Purchase 3, Sept. 22 250 6.30
Sale 5 (285) 11.90
Required -
1. Compute the cost of goods available for sale before taking into account any sales.
2. Compute the cost of ending inventory and the cost of goods sold using the specific identification method. Assume the ending inventory is made up of 40 units from beginning inventory, 30 units from purchase 1, 80 units from purchase 2, and 40 units from purchase 3.
3. Now assume that an inventory count took place at the end of the year and indicated that 190 units are left on hand. Compute the cost of ending inventory and the cost of goods sold using the FIFO inventory costing method.
4. If the company uses FIFO and the Net Realizable Value of ending inventory is $6.00 per unit, is a write-down of inventory necessary? Why or why not?
5. If a write-down is necessary, calculate how much this write-down would be for and then record the necessary journal entry.
6. What is the conceptual justification for valuing inventory at the lower of cost and net realizable value?
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