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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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Answer:

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Explanation:

From the question, we have:

New quantity demanded = 60,000

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The formula for calculating the price elasticity of demand is as follows:

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Where, based on the midpoint formula, we have:

Percentage change in quantity demanded = {(New quantity demanded - Old

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2]} * 100 = {(60,000 - 6,000) / [(60,000 + 6,000) / 2]} * 100 = 163.636363636364%

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Substituting the values into equation (1), we have:

Price elasticity of demand = 163.636363636364% / -66.6666666666667% = -2.45454545454546

Rounding to 2 decimal places, we have:

Price elasticity of demand = -2.45

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3 0
2 years ago
The master budget at Western Company last period called for sales of 225,000 units at $9 each. The costs were estimated to be $3
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Answer:

Operating profit = $982,500

Explanation:

Given:

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Find:

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Sales revenue (230,000 x $9)                 $2,070,000

Less: Variable (230,000 x $3.75)              $862,500

Contribution margin                               $1,207,500

Less: Fixed cost                                            225,000

<u>Operating profit                                         $982,500</u>

<u></u>

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2 years ago
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8 0
3 years ago
Walgreens Boots Alliance, Inc. reported inventories of $8,678 million and $6,076 million in its August 31, 2015, and August 31,
algol13

Answer:

The question is missing requirement.In other words, the question is difficult to answer in its current state,as a result find the requirement below:

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Explanation:

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Opening stock+Purchases-Closing stock

If we work backwards taking the costs of goods sold of $76250 as our purchases since we now have additional information on closing inventories at 31st August 2014 and 2015 respectively.

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Opening inventory as given 2300

Costs of goods sold given    76520

(that needs adjustment)

Closing inventory                   (2500)

Adjusted costs of good sold  $76320

8 0
3 years ago
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