KTR manufactures product JL-1519, which has a cost of $46.00 per unit and a normal sales price of $65.00 per unit. Changing customer preferences have slowed sales of the unit (of which KTR has 1,000 on hand at December 31, 2020). KTR is now selling them for $48.00 apiece and has stopped producing
them. In considering whether a lower-of-cost-or-net-realizable-value adjustment is necessary, the following information is available.

1. KTR offers sales incentives to its largest customers, with discounts reaching a maximum of 25% of the item’s sale price. One of KTR’s customers frequently buys approximately 300 units of JL- 1519 per year, and usually buys enough to reach the maximum 25% discount.

2. KTR has a signed sales agreement in place with a customer who has agreed to purchase 100 units of JL-1519 during 2021 at the old price of $65.00 each.

3. KTR expects to sell through all of its existing stock of JL-1519 without further price reductions. Your manager believes that an LCNRV adjustment may be necessary, and would like to know if it is, and if so, what the appropriate journal entry should be.

Answer rating: 100% (QA)

Solution 1 Sales Accounting Product obsolescence Cost ... View the full answer