Question

The following information relates to Moore Company's inventory at the end of Year 1 (on a FIFO basis): Cost of inventory = $460 Selling price of inventory = $500 Normal profit margin = 10% of selling price Current replacement cost = $370 Estimated selling expenses = $50 Under US GAAP, which of the following would be the correct measurement value for the inventory at the end of Year1?

Answer 1

Under US GAAP, Moore Company should report its inventory at the current replacement cost of $370 at the end of Year 1, which is lower than the cost and above the net realizable value after selling expenses.

Step-by-step explanation:

The correct measurement value for inventory under US GAAP at the end of Year 1 for Moore Company, would be the lower of cost or market (LCM). Cost of inventory is given at $460, while the current replacement cost is $370. As per US GAAP, the inventory should be reported at the replacement cost because it is lower than the cost and still higher than the net realizable value (NRV), which is the selling price ($500) minus the selling expenses ($50), equalling $450.

The normal profit margin is not directly relevant to the determination of inventory value on the balance sheet. In this case, the inventory would be valued at $370 under US GAAP at the end of Year 1.