Madison Co. has determined its year-end inventory on a LIFO basis to be $600,000. Information pertaining to that inventory is as follows:

 Madison Co. has determined its year-end inventory on a LIFO basis to be $600,000. Information pertaining to that inventory is as follows:
 
Selling price    $    720,000    
Costs to sell         30,000    
Normal profit margin         80,000    
Replacement cost         620,000    
 
What should be the reported value of Madison's inventory?

Multiple Choice

$610,000.


$690,000.


$620,000.


$600,000.

Answer

$600,000.

Explanation
RC = $620,000.
NRV = $720,000 − $30,000 = $690,000.
NRV − Normal profit margin = $690,000 − $80,000 = $610,000.
Designated market is replacement cost = $620,000 which is less than NRV and more than NRV minus normal profit margin.
Cost = $600,000.
Cost is less than market.

 

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