Question

At year-end, the kitchen shop has a refrigerator that has been used as a demonstration model. The refrigerator cost $375, sells for $550 when new, and in its present condition, the refrigerator will be sold for $330. Related selling costs are estimated at $15. At what amount should the refrigerator be carried in inventory? a) $330 b) $360 c) $375 d) $390

Answer 1

Inventory should be valued at the lower of cost or market, which would typically be $315 for the used refrigerator, but the closest option provided is $330, assuming selling costs are not deducted from inventory valuation.

Step-by-step explanation:

The question is regarding how to value inventory at year-end for a refrigerator used as a demonstration model. The refrigerator's original cost is $375, the new selling price is $550, the current selling price in its used condition is $330, and related selling costs are estimated to be $15. According to lower of cost or market (LCM) rule, inventory should be recorded at the lower of either its historical cost or its current market value. Therefore, the correct amount at which the refrigerator should be carried in inventory is the current selling price less any associated selling costs, which is $330 - $15, amounting to $315. However, this is not one of the provided options, so the assumption might be that selling costs are considered after valuing inventory, leaving the value at the current market selling price which is $330 (Option a).