Question

The December 31, 2020 inventory of Carla Vista Company consisted of four products, for which certain information is provided below. Product Original Cost Replacement Cost Estimated Disposal Cost Expected Selling Price Normal Profit on Sales A $30.00 $28.00 $8.00 $44.00 25.00% B $44.00 $42.00 $10.00 $54.00 20.00% C $124.00 $119.00 $29.00 $210.00 30.00% D $18.00 $15.40 $6.00 $30.00 20.00% Using the lower-of-cost-or-market approach applied on an individual-item basis, compute the inventory valuation that should be reported for each product on December 31, 2020. (Round answers to 2 decimal places, e.g. 52.75.)

Answer 1

Product Lower of cost or market value

A $28

B $42

C $119

D $18

Step-by-step explanation:

Particulars a b c d e f = d - c

Product Cost Replacement cost Estimated disposal cost Estimated selling price Normal profit in sales Ceiling

A $30 $28 $8 $44 25% $36

B $44 $42 $10 $54 20% $44

C $124 $119 $29 $210 30% $181

D $18 $15.4 $6 $30 20% $24

Product g = f - d × e h = middle value of b , f ,g i j = lower of I and h

Product Floor Designated market value Cost Lower of cost or market value

A $25 $28 $30 $28

B $33.2 $42 $44 $42

C $118 $119 $124 $119

D $18 $18 $18 $18

As we know that the inventory should be recognized at lower value of cost or market value and the same is considered