Question

Dell crop has unfinished inventory at a cost of $85,000 with a sales value of $125,000. The inventory will cost $10,500 to complete. The normal profit margin is 30% of sales. The replacement cost of the inventory was $75,000. What amount should Garcel report as inventory on the balance sheet under lower of cost or market? $114,500 $85,000 $77,000 $75,000

Answer 1

Garcel should report $75,000 as inventory on the balance sheet under the lower cost or market. The correct option is $75,000.

Step-by-step explanation:

To determine the amount that Garcel should report as inventory on the balance sheet under the lower cost or market, we need to compare the cost, sales value, replacement cost, and completion cost of the inventory. The lower of cost or market rule states that inventory should be valued at the lower of its cost or market value. In this case, the cost of the inventory is $85,000, the sales value is $125,000, the replacement cost is $75,000, and the completion cost is $10,500.

The market value is determined by comparing the replacement cost and the net realizable value. The net realizable value is the sales value minus the completion cost, which in this case is $125,000 minus $10,500 = $114,500. The market value is the lower of the replacement cost ($75,000) and the net realizable value ($114,500), which is $75,000.

Since the cost of the inventory is higher than the market value, Garcel should report $75,000 as inventory on the balance sheet under the lower of cost or market.