A local Chevrolet dealership carries the following types of vehicles:

Because of recent increases in gasoline prices, the car dealership has noticed a reduced demand for its SUVs, vans, and trucks.

Required:
1. Compute the total cost of the entire inventory.
2. Determine whether each inventory item would be reported at cost or market. Multiply the quantity of each inventory item by the appropriate cost or market amount and place the total in the “Lower-of-Cost-or-Market” column. Then determine the total for that column.
3. Compare your answers in Requirement 1 and Requirement 2 and then record any necessary adjustment to write down inventory from cost to market value.
4. Discuss the financial statement effects of using lower-of-cost-or-market to report inventory.

Transcribed Image Text:

Lower-of- (replacement cost) Cost-or- UnitMarket Market Inventory ltems Qntity Cost per Unit Trucks 2-door sedans 4-door sedans Sports cars SUVs S27,000 18,000 13,000 17,000 37,000 30,000 S25,000 7,000 15,000 20,000 40,000 28,000