The Key West Group Uses the Lower of Cost and Net

question 4

Essay

The Key West Group uses the lower of cost and net realizable value rule to value its kayak inventory.The Kayaks in inventory were purchased on January 1,2016 for $12,000.At year end December 31,2016 the net realizable value of Key West's inventory dropped to $9,000.At the end of 2017 due to a shortage of Kayaks this inventory increased in value to $15,000.
Required:
Prepare the required journal entries (if any)required at the 2016 and 2017 year end.

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Definitions:

Bias

A preconception or inclination towards something, potentially leading to unfair judgments or decisions in various contexts.

Incremental Overhead

The additional indirect costs incurred due to a change in business activities, such as an increase in production volume.

Income Taxes

Taxes levied by a government directly on income, especially an annual tax on personal or corporate earnings.

Sunk Costs

Sunk costs are expenses that have already been incurred and cannot be recovered.