Question

Q 6.20: Switzer, Inc. has 8 computers which have been part of the inventory for over two years. Each computer cost $600 and originally retailed for $900. At the statement date, each computer has a net realizable value of $400. What value should Switzer, Inc., report for the computers at the end of the year?

Answer 1

Answer:

$400 .Since inventory is valued at cost or market value(current replacement cost) whichever is lower .

Therefore value of inventory : $400*8=$3200

Explanation:

Answer 2

Answer:

$400

Explanation:

GAAP principle of Lower of Cost and Net realizable value requires to report the inventory as follow

Inventory Value

Lower of

• Cost of Inventory
• Net Realizable value of Inventory

In this question Computer was purchased for $600 and current Relalizable value is $400

Lower of

• Cost $600
• Realizable Value $400

Net Realizable value is lower, so, Switzer, Inc., report the computers for $400 at the end of the year.