Question

Madison Co. has determined its year-end inventory on a LIFO basis to be $600,000. Information pertaining to that inventory is as follows: Selling price $ 720,000 Costs to sell 30,000 Normal profit margin 80,000 Replacement cost 620,000 What should be the reported value of Madison's inventory?
A) $600,000.
B) $620,000.
C) $690,000.
D) $610,000.

Answer 1

Answer:

A) $600,000.

Explanation:

Given that

Replacement cost =$620,000

But before that we have to compute the net realizable value which is given below.

Net realizable value based on cost to sell is

= $720,000 - $30,000

= $690,000

Net realizable value based on normal profit margin is  

= $690,000 - 80,000

= $610,000

And the

Cost = $600,000

Since as we can see that the cost is less than the market value so the same i.e $600,000 would be reported as an inventory