Asked by marta velazquez on Jun 09, 2024
Verified
Berry Inc. has 6 computers which have been part of the inventory for over two years. Each computer cost $600 and originally retailed for $900. At the statement date each computer has a current replacement cost of $450. What value should Berry Inc. have for the computers at the end of the year?
A) $1800.
B) $2700.
C) $3600.
D) $5400.
Replacement Cost
The cost to replace an asset at its current market price, often used in insurance and accounting.
Inventory
The total amount of goods or materials a company has in stock for sale or production.
- Gain familiarity with the concept of the lower-of-cost-or-market rule applied to inventory valuation.
Verified Answer
JE
Jamie EversonJun 13, 2024
Final Answer :
B
Explanation :
The original cost of each computer was $600, so the cost of all 6 computers is 6 x $600 = $3600. However, since the current replacement cost of each computer is $450, the total value of the inventory is 6 x $450 = $2700. Therefore, the value that Berry Inc. should have for the computers at the end of the year is $2700.
Learning Objectives
- Gain familiarity with the concept of the lower-of-cost-or-market rule applied to inventory valuation.
Related questions
Inventory Is Reported in the Financial Statements at ...
Under the Lower-Of-Cost-Or-Market Basis in Valuing Inventory Market Is Defined ...
Under the LCM Approach the Market Value Is Defined as ...
The Application of the Lower of Cost or Market Rule ...
The Lower-Of-Cost-Or-Market Basis of Accounting for Inventories Should Be Applied ...