Question

Merle Industries had been selling its product for $24 per unit, but recently lowered the selling price to $17 per unit. The company's current inventory consists of 210 units purchased at $20 per unit. The market value of this inventory is currently $15 per unit. At what amount should the company’s inventory be reported on the balance sheet?

Answer 1

Answer:

The company’s inventory be reported on the balance sheet as $3,150.

Explanation:

GAAP and IFRS requires that the inventory of the company should be recorded as Lower cost and Net realizable value of the inventory.

According to given data

Available Inventory = 210 units

Cost of Inventory = 210 units x $20 = $4,200

Net realizable value is the value of the inventory which can be recovered on the immediate sale. the current market value of the inventory is $15.

So,

Net realizable value is = 2,100 units x $15 = $3,150

As the Net realizable value is lower than the cost of the inventory, $3,150 should be reported as inventory on the balance sheet.