Question

At what amount should Spartan record the inventory?

1) $80,000
2) $86,400
3) $90,000
4) $100,000

Answer 1

2.$86,400.because Spartan should record inventory at $86,400, following the principle of lower-of-cost-or-market (LCM) for a conservative valuation.

Step-by-step explanation:

Spartan should record the inventory at $86,400 because this amount represents the most conservative valuation of their inventory. It's likely that Spartan follows the principle of lower-of-cost-or-market (LCM), which means inventory should be valued at the lower of its historical cost or market value. Among the options provided, $86,400 is the lowest amount, ensuring a conservative approach to valuation.

The LCM principle ensures that inventory is not overstated on the balance sheet. This principle requires companies to write down the value of inventory to its market value if it falls below the recorded cost. In this scenario, $86,400 is the lowest amount among the options, implying that it could be the closest to the market value or a more conservative estimation.

Choosing a higher inventory valuation than $86,400 could potentially overstate the value of inventory, leading to an inaccurate representation of the company's financial position thus the correct option is 2.