Question

At the year-end, Encore Company has a product for inventory that was purchased at a cost of $23. The product's expected selling price is $36 and the cost of completing the sale is $15. Using the lower of cost or net realizable value rule, what amount should be reported on the balance sheet for inventory

Answer 1

$21

Step-by-step explanation:

As we know that

The inventory should be recorded in the books of accounts by applying the lower value of cost or net realizable value

In the given case

The cost is $23

And, the net realizable value is

= Expected selling price - selling cost

= $36 - $15

= $21

So by comparing the cost and net realizable value, the net realizable value contains the lower value i.e $21 and the same is recorded on the balance sheet for inventory