Blaedon Co. makes ongoing design refinements to lawnmowers that are produced for it by contractors. Blaedon stores the lawnmowers in its own warehouse and sells them at list price, directly to retailers. Blaedon uses the FIFO inventory method. Approximately two-thirds of new lawnmower sales involve trade-ins. For each used lawnmower traded in and returned to Blaedon, retailers receive a $40 allowance regardless of whether the trade-in was associated with a sale of a 2007 or 2008 model. Blaedon’s net realizable value on a used lawnmower averages $25. At December 31, 2007, Blaedon’s inventory of new lawnmowers includes both 2007 and 2008 models. When the 2008 model was introduced in September 2007, the list price of the remaining 2007 model lawnmowers was reduced below cost. Blaedon is experiencing rising costs.

Required

1. At December 31, 2007, how should Blaedon determine the carrying amounts assigned to its lawnmower inventory of

a. 2008 models?

b. 2007 models?

2. Considering only the 2008 model lawnmower, explain the impact of the FIFO cost flow assumptions on Blaedon’s 2007

a. Income statement amounts.

b. Balance sheet amounts.