Question

The balance sheet value of a firm's inventory is $70,000. Suppose that the firm purchases supplies at a cost of $2,000 and adds them to inventory. A day later, the market value of the recently purchased supplies changes to $3,500. Assuming no other changes to inventory, and using the historical cost method, what is the final balance sheet value of inventory?

Answer 1

$72,000

Step-by-step explanation:

Since it is given in the question that the inventory of firm in the balance sheet is $70,000 and the purchase cost of supplies is $2,000 that is added in inventory.

Also the market value of the inventory I.e currently purchased is $3,500 which represent that it changes rapidly

Here by using the historical method, the final amount if inventory that should be reported in the balance sheet is

= Value of the firm's inventory + Purchase cost of supplies

= $70,000 + $2,000

= $72,000