Question

The Eserine Wood Corporation manufactures desks. Most of the company's desks are standard models that are sold at catalogue prices. At December 31, 2014, the following finished desks appear in the company's inventory:
The 2014 catalogue was in effect through November 2014, and the 2015 catalogue is effective as of December 1, 2014.
All catalogue prices are net of the usual discounts. Generally, the company tries to obtain a 20% gross margin on the selling price and it has usually been successful in achieving this.
Instructions
(a) Assume that the company has adopted a lower of FIFO cost and net realizable value approach for the valuation of inventories and applies it on an individual inventory item basis. At what total inventory value will the desks appear on the company's December 31, 2014 balance sheet?
(b) Explain the rationale for using the lower of cost and market rule for inventories.
(c) Explain the impact if inventory was valued at lower of cost or net realizable value on a total basis.


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  • CreatedSeptember 18, 2015
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