Asked by Rachel Oftedahl on May 21, 2024
Verified
Barley Company developed the following information about its inventories in applying the lower-of-cost-or-market (LCM) basis in valuing inventories: Product Cost Market A $115,000$120,000 B 80,00073,000 C 158.000162,000\begin{array}{ccc} \text { Product } & \text { Cost } & \text { Market } \\\hline \text { A } & \$ 115,000 & \$ 120,000 \\ \text { B } & 80,000 & 73,000 \\ \text { C } & 158.000 &162,000 \\\end{array} Product A B C Cost $115,00080,000158.000 Market $120,00073,000162,000
If Barley applies the LCM basis the value of the inventory reported on the balance sheet would be
A) $346000.
B) $353000.
C) $355000.
D) $362000.
Lower-of-cost-or-market
An accounting principle that requires inventory to be recorded at the lower of its original cost or current market value, ensuring assets are not overstated on the balance sheet.
Balance Sheet
A documentation of a company’s financial position, showcasing assets, liabilities, and the equity held by shareholders at a particular instance.
- Evaluate and apply the lower-of-cost-or-market basis with respect to different inventory methods.
Verified Answer
ZP
Zamaphelo PreciousMay 23, 2024
Final Answer :
A
Explanation :
The lower-of-cost-or-market (LCM) method requires that inventory be reported at the lower of either its historical cost or its market value. For Product A, the cost is $115,000 and the market value is $120,000, so we use the cost of $115,000. For Product B, the cost is $80,000 and the market value is $73,000, so we use the market value of $73,000. For Product C, the cost is $158,000 and the market value is $162,000, so we use the cost of $158,000. Adding these together, $115,000 + $73,000 + $158,000 = $346,000.
Learning Objectives
- Evaluate and apply the lower-of-cost-or-market basis with respect to different inventory methods.