Question

Brief Exercise 9-4 Lower of cost or market (LO9-1] 0.71 points 07 se SLR Corporation has 1,000 units of each of its two products in its year-end inventory. Per unit data for each of the products are as follows: corporation has 19000 units Product 1 Product 2 Cost Replacement cost Selling price Selling costs Normal profit margin O COO bolo # 00 Determine the balance sheet carrying value of SLR's inventory assuming that the lower of cost or market (LCM) rule is applied to individual products. What is the before-tax income effect of the LCM adjustment? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the balance sheet carrying value of SLR's inventory assuming that the lower of cost or market (LCM) rule is applied to individual products. Lower of Cost Product Cost Market Cost or $ 1 2 $ 50 34 32 26 Per Unit Inventory Unit Value $ 501,000 261,000 Cost Inventory value $ 50,000 34,000 $ 84,000 Market $50,000 26,000 $ 76,000 < Required 1 Required 2 >

Answer 1

Solution

Requirement 1

Product	Cost	Market	Per unit Inventory value	Unit	Cost	Lower of cost or market
1	$               50.00	$      54.00*	$          50.00	1000	$ 50,000.00	$   50,000.00
2	$               34.00	$      26.00	$          26.00	1000	$ 34,000.00	$   26,000.00
			Cost		$ 84,000.00
			Inventory value			$   76,000.00

*Market value will be $54 as calculated below

.If we want to value inventory on the basis of lower of cost or market value then we have to first calculate market value.

To calculate market value an easy method is used in this question. We will take the middle value of the given below values to ascertain market value.

Replacement value

NRV

NRV minus Normal Profits

.

	Replacement value	NRV	NRV minus Normal Profits	Per unit Inventory value
Product 1	$          48.00	$               64.00	$      54.00	$          54.00
Product 2	$          26.00	$               32.00	$      24.00	$          26.00

Requirement 2

Before tax income effect = $8000

.

Before tax income effect = inventory value - cost.................(84000-76000)