Answer:
At December 31, 2020, the loss that Oriole should recognize is $123,000
Explanation:
Given:
Estimated selling price = $ 1,050,000
Estimated cost of disposal = $43,000
Normal profit margin = $123,000
Current replacement cost = $927,000
Net realizable value of the inventory = Estimated selling price - Estimated cost of disposal
Net realizable value = $1,050,000 - $43,000 = $1,007,000
Replacement cost = $927,000
Net realizable value - Normal profit = $1,007,000 - $123,000 = $884,000
The replacement cost will be taken as the market value of the inventory because it is higher than the floor (net realizable value - normal profit) and lower than ceiling (net realizable value).
Cost of inventory = $1,007,000
Loss to be recognized using lower of cost or market rule = Cost - market value
= $1,007,000 - $884,000 = $123,000
