Question

Trendy Toy Company purchased 1,000 toys at a cost of $50 each. Trendy Toys has 200 toys in inventory at year-end with a replacement cost of $45 each. The ending inventory at lower-of-cost-or-market is $10,000. $9,000. $5,000. $1,000.

Answer 1

The answer is B.

Step-by-step explanation:

The lower of cost or market rule for inventory states that an entity must record its inventory at the lower of cost or market value. The cost is the historical cost i.e the cost at which the inventory was purchased while the market value is the present value of the inventory i.e the value at which the inventory will be sold or purchased now.

In the question the market value of $45 is lower than the historical cost of $50. So market value will be used to determine the value of ending inventory.

Therefore, we have $45 x 200 toys

=$9,000