Question

Bonnie Stores has 20 toasters on hand at the balance sheet date. Each costs $27. The net realizable value is $30 per unit. Under the lower-of-cost-or-net realizable value basis of accounting for inventories, what value should Bonnie report for the toasters on the balance sheet? Why?

Answer 1

$540, because it is lower than the net realizable value of $600

Step-by-step explanation:

Generally Acceptable Accounting Principles requires that the closing inventory should be valued at lower of cost and Net realizable value.

Closing Inventory Value

Cost = 20 Toasters x $27 = $540

Realizable Value = 20 Toasters x $30 = $600

Lower of cost and net realizable value determine the value of closing inventory based on the cost incurred to produce or purchase a inventory unit or net realizable value of the inventory unit which ever is lower. In this question cost of unit of inventory is $540 and net realizable value is $600, cost of inventory is lower, the cost value of $540 will be reported as the on the balance sheet.

Answer 2

The value of toasters is $540

The cost of $27 each is lower than net realizable value of $30 each

Step-by-step explanation:

Bonnies Store would value 20 toasters on hand at cost of $27 each since the cost per unit of $27 is lower than net realizable value of $30 as required by both U.S GAAP and International Financial Reporting Standards(IFRS).

As a result the closing value of the 20 toasters would be $540($27*20) in the balance sheet recorded under inventory as the toasters are items bought for resale by Bonnie Stores.