Practice prompt · Q:inventory-ownership-cost-flow-and-measurement/write-down-to-net-realizable-value-001

Compare cost with net realizable value and record the result

Tests whether the learner writes inventory down only when cost is higher, and never writes it up.

Updated Sep 11, 2026 Review due Nov 18, 2026

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A first-in first-out company holds two inventory items. Item A cost 40,000 and has an estimated selling price of 46,000 with 9,000 of cost to complete and sell. Item B cost 18,000 and has an estimated selling price of 25,000 with 2,000 of cost to sell.

Net realizable value is the selling price less what it still costs to finish and sell the goods. Cost above that figure is cost the company will not recover, and holding it on the balance sheet would report an asset at more than it can produce.

Choose the best answer. a Write item A down by 3,000 and leave item B at 18,000. b Write item A down by 3,000 and write item B up by 5,000. c Leave both at cost, because the two items together are worth 60,000 against a combined cost of 58,000. d Write item A down by 6,000 to its selling price less cost to complete and sell of 34,000.

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Answer: a

Choice a. Item A's net realizable value of 37,000 is 3,000 below cost; item B needs no entry.