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In: Accounting

Affliction Company uses the lower-of-cost-or-market method, on an individual-item basis, in pricing its inventory items. The...

  1. Affliction Company uses the lower-of-cost-or-market method, on an individual-item basis, in pricing its inventory items. The inventory at December 31, 2014, consists of products D, E, F, G, H, and I. Relevant per-unit data for these products appear below. Using the lower-of-cost-or-market rule, determine the proper unit value for balance sheet reporting purposes at December 31, 2014, for each of the inventory items below.

Item D

Item E

Item F

Item G

Item H

Item I

Estimated selling price

$130

$98

$95

$85

$105

$80

Cost

 100

  80

 60

 80

  65

 42

Replacement cost

 110

  65

 70

 50

  70

 40

Estimated selling expense

  25

  25

 20

 20

  25

 25

Normal profit

  30

  18

 25

 27

  22

 20

Solutions

Expert Solution

Item D Item E Item F Item G Item H Item I
Estimated selling price        130          98          95          85        105          80
Cost        100          80          60          80          65          42
Replacement cost        110          65          70          50          70          40
Estimated selling expense          25          25          20          20          25          25
Normal profit          30          18          25          27          22          20
NRV (Selling Price - Selling Expense)              105               73               75               65                80               55
NRV - Normal profit                75               55               50               38                58               35
MARKET              105               65               70               50                70               40
LOWER OF COST OR MARKET              100               65               60               50                65               40
Note : Market price is same as replacement cost, but if replacement cost is more than NRV then NRV will be the market value(as in Item D), Also market price should not be less then NRV-NP.

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