Car Dealership Inventory Write-Down: Cost to Net Realizable Value

What types of vehicles are affected by the reduced demand due to increased gasoline prices?

The types of vehicles affected by the reduced demand due to increased gasoline prices are SUVs, vans, and trucks. How can the dealership address the situation?

Final answer:

This answer explains how to write down inventory from cost to net realizable value. If the cost of the item is higher than its net realizable value, an entry is made to debit 'Loss on Write-Down of Inventory' and credit 'Inventory' for the difference.

Explanation:

To determine necessary entries to write down inventory from cost to net realizable value (NRV), compare the unit cost with the unit NRV for each type of vehicle. If the cost is higher than NRV, a write-down is needed to reduce the inventory value to its NRV.

For vans, the unit cost is $21,500, and unit NRV is $19,500. For trucks, the unit cost is $16,900, and unit NRV is $15,900. For SUVs, the unit cost is $27,800, and unit NRV is $22,500. Since the unit cost exceeds NRV for these three types of vehicles, inventory write-down is required.

• Vans: Debit 'Loss on Write-Down of Inventory' $2,000 and Credit 'Inventory' $2,000.
• Trucks: Debit 'Loss on Write-Down of Inventory' $1,000 and Credit 'Inventory' $1,000.
• SUVs: Debit 'Loss on Write-Down of Inventory' $5,300 and Credit 'Inventory' $5,300.

By writing down the inventory value for these vehicles, the dealership can adjust to the reduced demand caused by higher gasoline prices and maintain profitability. Learning more about Inventory Write-Down can help understand the process better.