Question

the answer is A, please show work

24. Information pertaining to the inventory of Paddington Company follows. LIFO Cost Selling Price Replacement Cost $3,500 4,500 11,000 $4,000 4,500 11,000 $3,000 4,800 10,500 Category: Supreme .Item A .Item B .Item C Category: Classic .Item X .Item Y .Item Z 18,000 22,000 35,000 18,000 26,500 30,000 19,000 26,000 33,000 The company has a normal profit margin of 20% of selling price and has no additional costs to complete or sell the items. What is the lower-of-cost-or-market value of Paddington's December 31, 2020, inventory applying the rule to (a) each individual item and (b) to each inventory category? Inventory Item a. $88,200 b. $89,700 c. $92,000 d. $94,000 Inventory Category $92,200 $94,000 $92,000 $94,000

Answer 1

Inventory Valuation

Answer: a. Inventory Item $ 88200 and Inventory Category $ 92200

Working is as follows:

Part (a)   

Stock	Cost Price	Market Price	Lower of Cost or Market Price
Category: Supreme
Item A	3500	3200	3200
Item B	4500	4500	4500
Item C	11000	10500	10500
Category: Classic
Item X	18000	18000	18000
Item Y	22000	26000	22000
Item Z	35000	30000	30000
Total Inventory			88200

Calculation of Market Price

Stock	Selling Price	Replacement Cost	Market Floor (Selling Price - 20%)	Market Price
Category: Supreme
Item A	4000	3000	3200	3200
Item B	4500	4800	3600	4500
Item C	11000	10500	8800	10500
Category: Classic
Item X	18000	19000	14400	18000
Item Y	26500	26000	21200	26000
Item Z	30000	33000	24000	30000

In case if Replacement Cost is Lower than Selling Price and Market Floor then Market Price is Market Floor

If Replacement cost is Higher than Selling Price and Market Floor then Selling Price is Market Price

If Replacement cost is in between Selling Price and Market Floor then Replacement cost is market Price

Part (b)

Stock	Cost Price	Market Price	Lower of Cost or Market Price
Category Supreme	19000	18200	18200
Category Classic	75000	74000	74000
Stock Value			92200

Calculation of Market Price

Stock	Selling Price	Replacement Cost	Market Floor	Market Price
Category: Supreme
Item A	4000	3000	3200	3200
Item B	4500	4800	3600	4500
Item C	11000	10500	8800	10500
Market Price Category Supreme				18200
Category: Classic
Item X	18000	19000	14400	18000
Item Y	26500	26000	21200	26000
Item Z	30000	33000	24000	30000
Market Price Category Classic				74000

In case if Replacement Cost is Lower than Selling Price and Market Floor then Market Price is Market Floor

If Replacement cost is Higher than Selling Price and Market Floor then Selling Price is Market Price

If Replacement cost is in between Selling Price and Market Floor then Replacement cost is market Price