question archive 1, As at 30 June 2014, Rincon has 100,000 hats in inventory
1, As at 30 June 2014, Rincon has 100,000 hats in inventory
Subject:AccountingPrice:9.82 Bought3
1, As at 30 June 2014, Rincon has 100,000 hats in inventory. The hats cost man #24 each. At 30 June 2014, their sales price is reassessed to €2.50 23.01. The average sales cost per hat is €0.30. 3" *5 "he required journal entry to record this event. ,(2) Subsequently, in August 2014, and as a'result of global warming, there lwas a drastic surge in the demand for hats such that each hat could be sold for €30. In August, the 100,000 hats were still in inventory out expected to be sold very soon. Pass the required journal entry.
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
| 1. JOURNAL ENTRY AT JUNE 30, 2014 | ||||
| Date | Particulars | Debit | Credit | |
| June 30, 2014 | Loss on inventory write-down | 180,000 | ||
| Allowance for inventory write-down | 180,000 | |||
| 2. JOURNAL ENTRY AT AUGUST 2014 | ||||
| Date | Particulars | Debit | Credit | |
| Aug. 2014 | Allowance for inventory write-down | 180,000 | ||
| Reversal of loss on inventory write-down | 180,000 | |||
Step-by-step explanation
| SOLUTION: | ||||
| A. Inventories are originally measured at cost, and subsequently measured at the lower of cost or net realizeable value, where net realizeable value is estimated sellingprice less estimated selling cost. The net realizeable value vs. cost is as follows: | ||||
| Estimated selling price per unit | 2.50 | |||
| Estimated selling cost per unit | 0.30 | |||
| Net realizeable value per unit | 2.20 | |||
| VS: Cost per unit | 4.00 | |||
| Measurement of inventory (lower) | 2.20 | |||
| B. Since the lower is the net realizeable value, the inventories originally measured at cost shall be written down to its net realizeable value, the write down is computed as follows: | ||||
| Cost per unit | 4.00 | |||
| Less: Net realizeable value per unit | 2.20 | |||
| Write-down per unit | 1.80 | |||
| Multiply by:Number of units | 100,000.00 | |||
| Recorded write-down loss | 180,000.00 | |||
| C. When net realizeable value becomes greater than the cost subsequent to write-down, the inventories must be measured again at cost since cost is lower and a reversal of the write-down will be recorded. Since 30 less 0.3 of 29.7 is greater than the cost of 4, a reversal will be made. The reversal can only be up to the extent of the recorded write-down loss. | ||||
