Question

Jones Company's inventory cost is $100. The expected sales price is $110. The company estimates sales cost as 10% of the sales price. Consistent with the lower of cost and net realizable value approach, this inventory item should be valued at __________.

Answer 1

Answer:

The inventory is valued at $99

Explanation:

The lower of cost and net realizable approach to valuing inventory is used at year end to value stock of inventory and it involves valuing the closing stock at the lower of cost price and net realizable value(NRV).

The net realizable value is the expected sales price less the cost of making the sale.

The cost price is $100

NRV=$110-($110*10%)=$99

Since the NRV is lower,the inventory item is valued at $99 per item of inventory.

Answer 2

Answer:

$99

Explanation:

Given that

Expected sales price = 110

Sales cost is 10% of sales price = 110 × 10%

= 110 × 0.1

= 11

Recall that

Net realizable value = expected sales prices - total selling cost

NRV = 110 - 11

NRV = 99

Thus, the inventory should be valued at $99.