Robin Corporation has the following four items in its inventory:
Item Cost Replacement Cost Net Realizable Value NRV less Norm Profit Margin
Jokers 2,000 1,900 2,100 1,600
Penguins 5,000 5,100 4,950 4,100
Riddlers 4,400 4,550 4,625 3,700
Scarecrows 3,200 2,990 3,830 3,070
BE9-3 Battletoads Inc. uses a perpetual inventory system. At January 1, 2008, inventory was $214,000 at both cost and market value. At December 31, 2008, the inventory was $286,000 at cost and $269,000 at market value. Prepare the necessary December 31 entry under (a) the direct method and (b) the indirect method.
The first step is to decide the market cost for each item, which is the cost in the middle of replacement cost, net realizable value (ceiling), and NRV less normal profit margin (floor). Next compare the market cost to the actual cost and choose the lower of the cost of market.
Computation and process illustrated for you. No references.