Question

Data related to the inventories of Alpine Ski Equipment and Supplies is presented below: Skis Boots Apparel Supplies Selling price $ 180,000 $ 140,000 $ 120,000 $ 60,000 Cost 128,000 133,000 90,000 45,000 Replacement cost 120,000 130,000 110,000 41,000 Sales commission 10 % 10 % 10 % 10 % In applying the lower of cost or net realizable value rule, the inventory of skis would be valued at: Multiple Choice $180,000. $128,000. $120,000. $162,000.

Answer 1

The inventory of skis should be valued at $162,000 applying the lower of cost or net realizable value rule, considering both the selling price and the sales commission.

Step-by-step explanation:

The question is focused on applying the lower of cost or net realizable value rule to value the inventory of skis. To determine the value of the inventory under this rule, we compare the original cost to the net realizable value. The net realizable value is the estimated selling price in the ordinary course of business, minus reasonably predictable costs of completion, disposal, and transportation. In this case, it is also important to consider the sales commission expenses which are 10% of the selling price.

The original cost of the skis is $128,000. The selling price is $180,000, and the sales commission at 10% would be $18,000 (10% of $180,000). Therefore, the net realizable value can be calculated as the selling price minus the sales commission, which equals $180,000 - $18,000 = $162,000. Since the net realizable value ($162,000) is greater than the replacement cost ($120,000) but lower than the original cost ($128,000), according to the lower of cost or market rule, we would use the net realizable value to value the inventory of skis.

Therefore, the inventory of skis would be valued at $162,000.

Answer 2

Answer: The answer is $128,000

Step-by-step explanation:

$ $ $ $

Selling price. 180,000. 140,000. 120,000. 60,000

Less 10% commission 18,000. 14,000. 12,000. 6,000

-------------- -------------- --------------- -------------

162,000. 126,000 108,000. 54,000

Less cost. 128,000. 133,000. 90,000. 45,000

--------------- ---------------- --------------- ----------------

34,000 (7,000) 18,000. 9,000

Add: replacement cost 120,000. 130,000 110,000. 41,000

------------------ --------------- --------------- --------------

Inventory 154,000. 137,000. 128,000. 50,000

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