Question

SLR Corporation has 1,700 units of each of its two products in its year-end inventory. Per unit data for each of the products are as follows:

	Product 1				Product 2
Cost		$	56			$	40
Replacement cost			54				31
Selling price			76				42
Selling costs			12				4
Normal profit			16				8

Determine the 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?

	Product Cost Market Per Unit Inventory Value Unit Cost Lower of Cost or Market 1 1,700 2 1,700 52,700 Cost Inventory value

  

Answer 1

Product Cost Market Per Unit inventory value Unit Cost 1700 $ 95,200.00 1700 $ 68,000.00 Lower of Cost or Market $ 91,800.00 $ 52,700.00 40 31 $ 163,200.00 Cost Inventory Value 144,500.00 Before Tax income effect Lower by $ 18,700.00 Explaination : Product Replacement cost NRV(Selling price - cost to sell) NRV - NP 54 31 38 Market Value (middle value of 1,2 & 3) 54 64 48 30