Question

Taylor Entertainment Center has 5 TVs on hand at the balance sheet date that cost $400 each. The net realiz- able value is $350 per unit. Under the lower-of-cost-or- net realizable value basis of accounting for inventories, what value should Taylor report for the TVs on the balance sheet? Why?

Answer 1

Answer:

Under the lower-of-cost-or- net realizable value basis of accounting for inventories, the value that Taylor should report for the TVs on the balance sheet is $350 × 5 = $1,750

Explanation:

The lower-of-cost-or- net realizable value basis of accounting for inventories values inventory at the lower of its cost or net realizable value. This basis of accounting gives a faithful representation to the users of the value of assets in inventory that firm holds. This is  also prudent in that profits are not overstated in the Income statement.