1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
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

You might be interested in
DEF Corporation had two issues of ordinary preferred stock with a $100 par value traded on the NYSE. One issue paid $5.56 annual
asambeis [7]

Answer:

5.93%

Explanation:

Cumulative Dividend for both (5.56+5.88)          $11.44

share price for both types of preferred stock (95.55+97.5) $193.05

Cost of preferred stocks $11.44/193.05=5.93%

6 0
3 years ago
Deferral adjustments are needed when the business:_______
Mnenie [13.5K]

Answer: b. pays cash before the expense has been incurred.checked

d. receives cash before the revenue has been generated

Explanation:

Here is the complete question:

Deferral adjustments are needed when the business:

a. pays cash after the expense has been incurred.unchecked

b. pays cash before the expense has been incurred.checked

c. receives cash after the revenue has been generated.unchecked

d. receives cash before the revenue has been generated.

Adjustments are made during the end of every accounting period in order to report the revenues and the expenses in proper period at which they occur and also in order to report the assets and the liabilities at their appropriate amounts.

Deferral adjustment is when the revenue or the expense has been deferred or postponed and will therefore be reported on the income statement at a later period.

Previously deferred amounts will show on the balance sheet when a company pays cash before having to incur the expense or in a case whereby the company gets and collects cash before earning the revenue.

When revenues are made or when expenses are incurred, the previously deferred amounts will have to be adjusted and then, the amounts will be transferred to income statement through the use of the deferral adjustment.

5 0
3 years ago
Tyrrell's small lumber company aims to fulfill the economic foundation of business. What first step must his company take to ach
olga nikolaevna [1]

The  first step must his company take to achieve this goal is: earn profit.

<h3>What is profit?</h3>

Profit is what a person gain from the sell of products after deducting their expenses and other production cost.

In order for the company to achieve their set goals which is to fulfil the economic foundation business they need to first of all earn profits from their business.

Therefore the company needs to earn profit.

Learn more about profit here:brainly.com/question/24553900

#SPJ1

8 0
2 years ago
Cache Creek Manufacturing Company is expected to pay a dividend of $4.20 in the upcoming year. Dividends are expected to grow at
Digiron [165]

Answer: 0.9

Explanation:

The Expected Return on an investment can be calculated using the Dividend Discount Model as it is a key component in thw formula which is,

P = D1 / r - g

where,

D1 is the dividend paid next year

P is the current stock price

g is the growth rate

r is the expected return

With the given figures we have,

84 = 4.20 / r - 0.08

84 ( r - 0.08) = 4.20

r - 0.08 = 4.20/84

r = 4.20/84 + 0.08

r = 0.13

The Expected Return can be slotted into the CAPM formula to find the beta.

The CAPM formula calculates the Expected Return in the following manner,

Er = Rf + b( Rm - rF)

Where,

Er is expected return

Rf is the risk free rate

Rm is the market return

b is beta

Slotting in the figures gives,

0.13 = 0.04 + b( 0.14 - 0.04)

0.13 = 0.04 + b (0.1)

0.13 - 0.04 = 0.1b

b = 0.09/0.1

b = 0.9

Using the constant-growth DDM and the CAPM, the beta of the stock is 0.9

8 0
3 years ago
An aging of a company's accounts receivable indicates that $8400 are estimated to be uncollectible. If Allowance for Doubtful Ac
Alexxandr [17]

Answer: Debit to bad debt expense for $3580.

Explanation:

Based on the information given, the bad debt expense will be:

= Desired balance - Actual balance before adjustment

= $8400 - $4820

= $3580

Based on the above, the journal entry will be:

Debit Bad debt expense $3580

Credit Allowance for uncollectible $3580

8 0
3 years ago
Other questions:
  • What is a career fair?
    13·1 answer
  • Jill is starting a fast food delivery company. she has designed a logo and plans to print flyers to advertise her services. jill
    8·1 answer
  • Releasing more information, in a common-value auction is a. ​Good for the bidders because it reduces the risk that they face b.
    9·1 answer
  • Normally, most organizational objectives can be summarized as:
    10·1 answer
  • Teal Company sells televisions at an average price of $814 and also offers to each customer a separate 3-year warranty contract
    8·1 answer
  • When creating your résumé, you should
    6·2 answers
  • "Tariffs and other trade restrictions increase the domestic scarcity of products from abroad. Such policies benefit domestic pro
    7·1 answer
  • Indiadesh is a country that produces two goods, textiles and computers. Last year, Indiadesh produced 500 textiles and 1300 comp
    8·1 answer
  • If the economy is at potential output, and the Fed _____ the money supply, in the long run, the price level will likely _____.
    12·1 answer
  • In a word document, conduct a cost-benefit analysis where you write all of the costs (monetary and non-monetary) and compare the
    12·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!