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jok3333 [9.3K]
3 years ago
5

Rowan Company has four different categories of inventory. The quantity, cost, and market value for each of the inventory categor

ies are as follows: Item Quantity Cost Per Unit Market Value Per Unit 1 220 $ 4.40 $ 4.60 2 130 $ 6.20 $ 6.00 3 100 $ 10.00 $ 9.25 4 25 $ 20.50 $ 25.00 The company carries inventory at lower-of-cost-or-market applied to the entire stock of inventory in the aggregate. How would the implementation of the lower-of-cost-or-market rule impact the elements of the company’s financial statements? Multiple Choice Increase total assets and stockholders’ equity by $55.50. Decrease total assets and stockholders’ equity by $101.00. Decrease total assets and stockholders’ equity by $79.00. Have no effect on total assets or stockholders’ equity.
Business
2 answers:
mojhsa [17]3 years ago
5 0

Answer: Total assets will decrease by $101 and shareholders' equity will decrease by $101

Explanation:

Inventory is initially Valued at Historical costs, Situations or conditions may change in the market which may affect the value of inventory on hand. When The cost of inventory is above the market price it is an indication that Inventory has lost its value and as a result the value of inventory must be adjusted.

The Lower of Cost or Market value method is a method of valuing inventory which stipulates that inventory should be value at the lower of cost or current market value. Determining inventory Market Value involves calculating  lower limits, Net realizable value , upper limits. The question provided us with the Market Values therefore we donot need to get into the process of calculating the Market Value.

Using Lower of Cost or Market to Value inventory

Inventory item 1

unit cost = $ 4.40 , Market value per unit = $4.60

Use cost per unit, cost per unit is lower than Market Value per unit. Inventory Value = 220 units x $4.40 = $968

Inventory item 2

unit cost = $ 6.20 , Market value per unit = $6

Use Market Value per unit, Market Value per unit is lower than  cost per unit. Inventory Value = 130 units x $6 = $780.

Decrease inventory by = (6.20 - 6) x 130 = $26

Inventory item 3

unit cost = $ 10 , Market value per unit = $9.25

Use Market Value per unit, Market Value per unit is lower than cost per unit. Inventory Value = 100 units x $9.25 $925.

Decrease inventory by = (10 - 9.25) x 100 = $75

Inventory item 4

unit cost = $ 20.50 , Market value per unit = 25

Use cost per unit, cost per unit is lower than Market Value per unit. Inventory Value = 25 units x $20.50 = $512.50

When The lower of cost or Market value rule is implemented, inventory will be written down by a total amount of $101 ($75 + $26). Total assets will decrease by $101 and shareholders' equity will decrease by $101 because  inventory write downs losses decrease profits which will effectively affects Shareholders' equity

luda_lava [24]3 years ago
3 0

Answer:

The correct answer is that the valuation would decrease total assets and stockholders’ equity by $101.00

Explanation:

Item             Cost                      Market price            Impact

Quantity

1 220 $ 4.40  $ 4.60        no impact as cost is lower

2 130 $ 6.20  $ 6.00 ($6.20-$6.00)* 130=$26

3 100 $ 10.00  $ 9.25 ($10-$9.25)*100    =$75

4 25 $ 20.50  $ 25.00 No impact as cost is lower

The total reduction in the value of inventory as a result of adopting the lower of cost or market price valuation is $101 ($75+$26),hence decreases total assets by $101 and the stockholders' equity(retained earnings which is a component of stockholders' equity ) by the same amount

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a firm in a perfectly competitive industry is producing 1000 units of output and earning revenues of 50000. At that level of out
hram777 [196]

Answer:

Increase quantity to where AC = MC = D=AR=MR

Explanation:

A perfectly competitive market is where there are many firms in the industry producing homogeneous products. There is ease of entry and exit into and out of the market. They are price takers and earn normal profits in the long-run. In order to maximize profits, a firm in a perfectly competitive industry should produce an the quantity where its average cost is equal to marginal cost when AR = MR = D. In other words, when the AC and MC curves intersect with AR = MR = D curve.

<em><u>Please refer diagram</u></em>

The firm is currently producing at a point where AC > MC at quantity 1000. In order to reach AC = MC, the firm has to increase its quantity to Qe. As it increases quantity, although marginal cost increases, average cost falls because now fixed costs are spread over a larger quantity of output.

At Qe, the three curves intersect and is the point where this firm can maximize its revenue (Price = Pe). At a price higher than this, it would lose customers since there are many others producing the same product and customers can easily shift to another.

7 0
3 years ago
A company investing borrowed funds expects to earn a return greater than the interest it will pay for the use of funds is using
Naddika [18.5K]

Answer:

Financial leverage

Explanation:

Financial leverage is defined as the use of borrowed funds to perform a business activity or investment that is expected to have higher returns than the cost of borrowing the money (interest).

When a company is looking for funds for its activities there are 3 options they can use: equity, debt, or lease.

Use of equity is the only option where no extra cost is incurred for use of funds.

When using debt or lease cost of use is incurred. The business will need to engage in an activity that will give it revenue above cost of debt.

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3 0
3 years ago
Sarah is a 50 percent partner in the SF Partnership and has an outside basis of $56,000 at the end of the year prior to any dist
Vikentia [17]

Answer:

A. $0 gain, $36,000 basis

Explanation:

In the distribution, from the information given, Sarah does not recognize any gain or loss.

However, given that

She had $56000 basis at end of year prior to distribution.

Then receives $20000 from distribution after reallocating her basis in SF to cash in amount equal to distribution

Therefore,

Her basis left = 56000 - 20000

= $36000

3 0
3 years ago
Read 2 more answers
Given this project and the requirement that the number of resources working on a task cannot be less than the number assigned to
Marizza181 [45]

Answer: c. 5 days, 7 workers

Explanation: With the project requirements provided, and with the least of number of resources working on the task not less than the number of those assigned to the task.

The least amount of time for the project to complete would be approximately 5 days, and the resources needed to complete the task would be approximately 7 workers.

8 0
3 years ago
Sage Company had cash receipts from customers in 2020 of $137,920. Cash payments for operating expenses were $84,990. Sage has d
Triss [41]

Answer:

sales revenue for the period: $  143,900

operating expenses:               $   78,000

Explanation:

We solve for sales using the account recievable identity:

beginning account receivable + sales - collection = ending account receivable

12,330 + sales - 137,920 = 18,310

sales = 137,920 + 18,310 - 12,330 = 143,900

Then, for operating expenses, we have a prepaid expenses thus unexpired and therefore, not expenses under accrued accounting.

we solve like this:

beginning prepaid expenses    19,800

payment on expenses              84,990

total expenses payment          104,790

We now subtract the prepaid (unexpired) to get the amount accrued for the period:

104,790 - 26,790 = 78,000

4 0
3 years ago
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