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Switzer, Inc. has 8 computers which have been part of the inventory for over two years....

Switzer, Inc. has 8 computers which have been part of the inventory for over two years. Each computer cost $900 and originally retailed for $1,100. At the statement date, each computer has a current replacement cost of $600. What value should Switzer, Inc., have for the computers at the end of the year?

a. $2,400. b. $3,200. c. $4,800. d. $7,200.

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Answer #1

Under GAAP, inventory is recorded as the lesser of cost or market value and the market value is defined as the current replacement cost as limited by net realizable value.

Switzer Inc. Purchased those 8 computers (inventories) for $900 per computer but now the realizable value is only $600 per computer i.e. the value which is expected to be realized from its sale.

It is clear that market value is far less than the cost of the inventories.

Therefore the inventories will be valued at market value i.e. $600*8 Computers= $4,800.

Therefore option (c) is the correct answer.

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