The Rusty Steel Company shifted to the LIFO method of accounting for inventory in 1929. At that time, the inventory of Type A-1 steel plate was 1,000 tons, with a cost of $100 per ton.

In 1932, the company decided to continue using LIFO, but it also incorporated the “cost-or-market, whichever is lower” criterion. Cost was computed by using a LIFO assumption as to flow. At that time, the inventory of Type A-1 steel plate was $2,000 tons, and the market value was $40 per ton (cost ranged from $50 to $100 per ton). The following entry was made to write the inventory down to market:

Loss on Inventory Price Decline . . . . . . . . . . . . . . . . . 80,000 

Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . .80,000

From 1932 to 2010, inventories of Type A-1 steel plate increased each year, and the market value was never lower than $40 per ton. In 2010, the finished goods inventory of A-1 steel plate decreased to 500 tons. In 2010, a ton of steel plate of this type cost $200 per ton to produce (the market value was greater than $200).

a. Comment on the write-down of inventory in 1932 and the procedure used since then (LIFO plus cost-or-market).

b. How would the income for 2010 be affected by the fact that inventory was decreased by at least 1,500 tons?