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Inventory is reported in the financial statement at:

a. cost

b. market.

c. the higher-of-cost-or-market

d. the lower-of-cost-or-market

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Egie Boy Cauba
Egie Boy CaubaLv5
23 Jan 2021
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Related questions

Steel Company, a wholesaler that has been in business for twoyears, purchases its inventory from various suppliers. During thetwo years, each purchase has been at a lower price than theprevious purchase. Steel uses the lower of cost or market method tovalue inventories. The original cost of the inventory is abovereplacement cost and below their net realizable value. That is, thenet realizable value less the normal profit margin is belowreplacement cost.

Required: What do you think about the criteriaused to determine which costs should be included in the inventory?Summarize the reason for the amounts Steel Company’s inventoryshould be reported on the balance sheet by explaining theapplication of lower of cost or market rule in this situation.Appraise, judge, and support why the lower of cost or market ruleis used to report inventory.

Basic inventory data for April 30 are presented below for abusiness that employs the lower of cost or market basis ofinventory valuation. Unit Unit Total Cost Market Lower of Commodity-Quantity- Price Price Cost C or M

A 30 $ 46 $ 49 _______ _______

B 15 165 161 _______ _______

C 25 80 87 _______ _______

D 30 55 50 _______ _______

(a) Complete the table.

(b) Determine the amount of reduction in the inventory at April30 attributable to market decline.

I Need the Solution for thefollowing Problem. Any help is appreciated.

Lower of Cost or Market

Problem:

The inventory records of Frost Company for the years 2016 and2017 reveal the cost and market of the January 1, 2016, inventoryto be $125,000. On December 31, 2016, the cost of inventory was$130,000, while the market value was only $128,000. The December31, 2017, market value of inventory was $140,000, and the cost wasonly $135,000. Frost uses a perpetual inventory system.

Required:

Assume the inventory that existed at the end of 2016 was sold in2017. Prepare the journal entries at the end of 2016 and 2017 torecord the lower of cost or market under the:

allowance method

direct method

Show the presentation of cost of goods sold and inventory onFrost's income statement and balance sheet for 2016 and 2017 underthe:

allowance method (assume the cost of goods sold prior toapplying the lower of cost or market was $595,000 and $605,000 for2016 and 2017, respectively)

direct method

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