Question

In: Accounting

Using the lower of cost or market rule, determine the proper unit value for balance sheet...

Using the lower of cost or market rule, determine the proper unit value for balance sheet reporting purposes for each of the inventory items listed below. Do this by a) calculating the designated market value and b) calculating the lower of cost or market.

Item

Replacement

Cost

Ceiling

Floor

Designated

Market

Cost

Lower of

cost or

market

Books

$15.00

$14.00

$12.80

$16

Spoons

17.20

19.20

17.60

16

Plates

12.80

15.20

13.60

16

Candles

9.60

10.40

8.80

16

Lamps

16.80

16.40

14.80

16

Solutions

Expert Solution

Solution

Item Replacement Ceiling Floor Designated Cost Lower of
Cost Market cost or
market
Books $     15.00 $   14.00 $   12.80 $         14.00 $16.00 $   14.00
Spoons $     17.20 $   19.20 $   17.60 $         17.60 $16.00 $   16.00
Plates $     12.80 $   15.20 $   13.60 $         13.60 $16.00 $   13.60
Candles $       9.60 $   10.40 $     8.80 $          9.60 $16.00 $    9.60
Lamps $     16.80 $   16.40 $   14.80 $         16.40 $16.00 $   16.00

Working

If we want to value inventory on the basis of lower of cost or market value then we have to first calculate market value.

To calculate market value an easy method is used in this question. We will take the middle value of the given below values to ascertain market value.

Replacement value NRV also known as Cealing NRV minus Normal Profits also known as Floor

Related Solutions

Determine the unit value that should be used for inventory costing following "lower of cost or...
Determine the unit value that should be used for inventory costing following "lower of cost or market value" as described in ARB No. 43. A B C D E F Cost $2.35 $2.45 $2.35 $2.63 $2.47 $2.47 Replacement cost 1.95 2.55 1.95 2.61 2.37 2.49 Net realizable value 2.50 2.50 2.50 2.43 2.53 2.53 Net realizable value less normal profit 2.25 2.30 2.40 2.25 2.33 2.33 Case A $ Case B $ Case C $ Case D $ Case E...
Lower-of-Cost-or-Market Inventory On the basis of the following data, determine the value of the inventory at...
Lower-of-Cost-or-Market Inventory On the basis of the following data, determine the value of the inventory at the lower of cost or market. Assemble the data in the form illustrated in Exhibit 10. Product Inventory Quantity Cost Per Unit Market Value per Unit (Net Realizable Value) Class 1: Model A 19 $299 $295 Model B 23   78 86 Model C 44 237   241 Class 2: Model D 9   78   83 Model E 9 244 228 a. Determine the value of the...
Lower-of-Cost-or-Market Inventory On the basis of the following data, determine the value of the inventory at...
Lower-of-Cost-or-Market Inventory On the basis of the following data, determine the value of the inventory at the lower of cost or market. Assemble the data in the form illustrated in Exhibit 10. Product Inventory Quantity Cost Per Unit Market Value per Unit (Net Realizable Value) Class 1: Model A 10 $164 $144 Model B 20   253 269 Model C 47 48   33 Class 2: Model D 26   48   37 Model E 35 49 37 a. Determine the value of the...
Lower-of-Cost-or-Market Inventory On the basis of the following data, determine the value of the inventory at...
Lower-of-Cost-or-Market Inventory On the basis of the following data, determine the value of the inventory at the lower of cost or market. Assemble the data in the form illustrated in Exhibit 10. Product Inventory Quantity Cost Per Unit Market Value per Unit (Net Realizable Value) Class 1: Model A 300 $140 $125 Model B 500   90 112 Model C 150 60   59 Class 2: Model D 800   120   115 Model E 400 140 145 a. Determine the value of the...
Lower-of-Cost-or-Market Inventory On the basis of the following data, determine the value of the inventory at...
Lower-of-Cost-or-Market Inventory On the basis of the following data, determine the value of the inventory at the lower of cost or market. Assemble the data in the form illustrated in Exhibit 10. Product Inventory Quantity Cost Per Unit Market Value per Unit (Net Realizable Value) Class 1: Model A 32 $256 $251 Model B 8   94 79 Model C 18 178   194 Class 2: Model D 23   247   263 Model E 34 98 77 a. Determine the value of the...
Under U.S. GAAP, inventories are reported on the balance sheet at lower−of−cost−or−market. This is an example...
Under U.S. GAAP, inventories are reported on the balance sheet at lower−of−cost−or−market. This is an example of: A. consistency principle B. historical cost principle C. conservatism principle D. full disclosure principle
1. Lower-of-Cost-or-Market Inventory On the basis of the following data, determine the value of the inventory...
1. Lower-of-Cost-or-Market Inventory On the basis of the following data, determine the value of the inventory at the lower of cost or market. Assemble the data in the form illustrated in Exhibit 9. Inventory Item Inventory Quantity Cost per Unit Market Value per Unit (Net Realizable Value) Birch 43 $244 $231 Cypress 15 68 58 Mountain Ash 37 230 245 Spruce 49 151 170 Willow 43 113 111 Inventory at the Lower of Cost or Market Inventory Item Total Cost...
How is merchandising inventory valued when using the lower-of-cost-or-market rule? a) ABC Company paid $3,000 for...
How is merchandising inventory valued when using the lower-of-cost-or-market rule? a) ABC Company paid $3,000 for its merchandise inventory. At the end of the accounting period, the merchandise inventory can now be replaced for $2,700 and this decline appears to be permanent. Write the journal entry to write down the inventory to LCM: What are the effects of merchandise inventory errors on the financial statements? Fill in the blanks below with “understated” or “overstated”: a) If the ending merchandise inventory...
Your firm’s market value balance sheet is given as follows: Market Value Balance Sheet Excess cash...
Your firm’s market value balance sheet is given as follows: Market Value Balance Sheet Excess cash $30M Debt $230M Operating Assets $500M Equity $300M Asset Value $530M Debt + Equity $530M Assume that the you plan to keep the firm’s debt-to-equity ratio fixed. The firm’s corporate tax rate is 50%. The firm’s cost of debt is 10% and cost of equity is 20%. Now, suppose that you are considering a new project that will last for one year. According to...
Your firm’s market value balance sheet is given as follows: Market Value Balance Sheet Excess cash...
Your firm’s market value balance sheet is given as follows: Market Value Balance Sheet Excess cash $30M Debt $230M Operating Assets $500M Equity $300M Asset Value $530M Debt + Equity $530M Assume that the you plan to keep the firm’s debt-to-equity ratio fixed. The firm’s corporate tax rate is 50%. The firm’s cost of debt is 10% and cost of equity is 20%. Now, suppose that you are considering a new project that will last for one year. According to...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT