Question

Exposition, Inc. had 200 units of inventory on hand at the end of the year. These were recorded at a cost of $14 each using the last-in, first-out (LIFO) method. The current replacement cost is $10 per unit. The selling price charged by Exposition, Inc. for each finished product is $16. As a result of recording the adjusting entry as per the lower-of-cost-or-market rule, the gross profit will ________. Group of answer choices increase by $2,000 decrease by $2,000 increase by $800 decrease by $800

Answer 1

Answer:

decrease by $800

Explanation:

The computation of the gross profit is calculated below:

= Number of inventory units on hand at the end of the year × (Cost per unit - current replacement cost per unit)

= 200 units × ($14 - $10)

= 200 units × $4

= $800

This $800 represents the decrease in gross profit and the same is to be considered

hence, the last option is correct