The December 31, 2014 inventory of Gwynn Company consisted of four products, for
ID: 2494089 • Letter: T
Question
The December 31, 2014 inventory of Gwynn Company consisted of four products, for which certain information is provided below.
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, 2014.
Cost Estimated
Disposal Cost Expected
Selling Price Normal Profit
on Sales A $25.00 $22.00 $6.50 $40.00 20% B $42.00 $40.00 $12.00 $48.00 25% C $120.00 $115.00 $25.00 $190.00 30% D $18.00 $15.80 $3.00 $26.00 10%
Explanation / Answer
The lower cost to market value method determine the cost of the inventory on the basis of the following rule:
1) the cost of the inventory is lower of the original cost or the market value
2) the replacement cost or the market value is determined as follows:
a) if the current replacement cost is in between the Net realizable Value and "net realizable value - normal profit" then the market value is the current replacement cost
b) if net realizable value is less than the current replacement cost, then net realizable value is the market value
c) if the current replacement less than the "net realizable value - normal profit", then An amount equal to the "net relaizable value - normal profit" is regarded as the market value.
On the basis of the above rules the value of the inventories has been calculated as follows:
Product Original Replacement Estimated Expected Net Realizable Normal Profit Normal Net realizable value less Market Inventory Cost ($) cost ($) Disposal Cost ($) Selling Price ($) value ($) on Sales ($) Profit ($) normal profit ($) Value ($) value ($) A 25.00 22.00 6.50 40.00 33.50 20% 8.00 25.50 22.00 22.00 B 42.00 40.00 12.00 48.00 36.00 25% 12.00 24.00 24.00 24.00 C 120.00 115.00 25.00 190.00 165.00 30% 57.00 108.00 108.00 108.00 D 18.00 15.80 3.00 26.00 23.00 10% 2.60 20.40 20.40 18.00Related Questions
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