Question

Merle Industries had been selling its product for $40 per unit, but recently lowered the selling price to $30 per unit. The company's current inventory consists of 200 units purchased at $32 per unit. The market value of this inventory is currently $26 per unit. At what amount should the company's inventory be reported on the balance sheet?

Answer 1

When the selling price of a product is lowered, the value of the inventory on the balance sheet needs to be adjusted. In this case, the inventory should be reported as $5,200 ($26 per unit x 200 units).

Step-by-step explanation:

When the selling price of a product is lowered, companies need to adjust the value of their inventory on the balance sheet. In this case, Merle Industries initially purchased 200 units at $32 per unit, resulting in a cost of goods sold (COGS) of $6,400. However, the market value of the inventory has decreased to $26 per unit, which means the inventory value should be reported at the lower market value. Therefore, the inventory should be reported as $5,200 ($26 per unit x 200 units) on the balance sheet.

Answer 2

$5,200

Step-by-step explanation:

The amount which is to be reported in the balance sheet is computed as:

Amount = Inventory × Current market value

where

As the presently the market price is $26. So, this amount will be considered while computing the inventory of the company.

Inventory is 200 units

Current market value is $26 per unit

Putting the values above:

Amount = 200 units × $26 per unit

Amount = $5,200

Therefore, $5,200 amount will be recorded in the balance sheet for the inventory amount.