Question

Blossom Distribution Co. has determined its December 31, 2020 inventory on a LIFO basis at $962000. Information pertaining to that inventory follows:

Estimated selling price	$1000000
Estimated cost of disposal	38000
Normal profit margin	118000
Current replacement cost	882000

Blossom records losses that result from applying the lower-of-cost-or-market rule. At December 31, 2020, the loss that Blossom should recognize is

$0.

$80000.

$118000.

$38000.

Answer 1

Net realizable value of Inventory:

Estimated selling price = $1,000,000

Less: Cost of disposal = $38,000

Less: Normal profit margin = $118,000

net realizable value = $844,000

Market value of inventory is lower of Net realizable value or replacement cost, whichever is higher

Net realizable value = $844,000

Replacement cost = $225,000

Market value of inventory (higher of the above) = $844,000

Inventory is valued at cost or market value which ever is lower

So cost = $962,000

Market value = $844,000

So, Value of Inventory (lower of the above) = $844,000.

Loss = $962,000 - $844,000 = $118,000

So option '3' is correct

$118,000