Question

Presented below is information related to Waterway Inc.’s inventory, assuming Waterway uses lower-of-LIFO cost-or-market. (per unit) Skis Boots Parkas Historical cost $262.20 $146.28 $73.14 Selling price 292.56 200.10 101.78 Cost to distribute 26.22 11.04 3.45 Current replacement cost 280.14 144.90 70.38 Normal profit margin 44.16 40.02 29.33 Determine the following: (a) The two limits to market value (i.e., the ceiling and the floor) that should be used in the lower-of-cost-or-market computation for skis. (Round answers to 2 decimal places, e.g. 52.75.)Ceiling Limit

Floor Limit
(b) the cost amount that should be used in the lower-of-cost-or-market comparison of boots.
The cost amount

Answer 1

A. Skis

Ceiling $266.34

Floor $222.18

B.Cost Amount $146.28

C.The market amount $70.38

Step-by-step explanation:

A. Computation of Waterway Inc two limits to market value that should be used in the lower-of-cost-or-market computation for skis

A. Skis

Ceiling

Selling price 292.56

less:cost to distribute -26.22

Ceiling 266.34

Floor

NRV 266.34

less:normal profit margin -44.16

Floor 222.18

B. Computation of the cost amount that should be used in the lower-of-cost-or-market comparison of boots.

Boots

Ceiling

Selling price 200.10

less:cost to distribute -11.04

Ceiling 189.06

Floor

NRV 189.06

less:normal profit margin -40.02

Floor 149.04

Cost Replacement ceiling Floor MV LCM

146.28 144.90 189.06 149.04 149.04 146.28

Therefore the cost amount that should be used in the lower-of-cost-or-market comparison of boots will be 146.28

C.Calucation for the market amount that should be used to value parkas on the basis of the lower-of-cost-or-market.

Parkas

Ceiling

Selling price 101.78

less:cost to distribute -3.45

Ceiling 98.33

Floor

NRV 98.33

less:normal profit margin -29.33

Floor 69

Cost Replacement ceiling Floor MV LCM

73.14 70.38 99.33 69 70.38 70.38

The market amount $70.38