Madison Co. has determined its year-end inventory on a LIFO basis to be $616,000. Information pertaining to that inventory is as follows:

 Madison Co. has determined its year-end inventory on a LIFO basis to be $616,000. Information pertaining to that inventory is as follows:
Selling price    $    736,000    
Costs to sell         37,900    
Normal profit margin         88,000    
Replacement cost         636,000    
 
What should be the reported value of Madison's inventory?

Multiple Choice

$616,000.

$636,000.

$610,100.

$698,100.

Answer

$616,000.
Explanation
RC = $636,000.
NRV = $736,000 − $37,900 = $698,100.
NRV − Normal profit margin = $698,100 − $88,000 = $610,100.
Designated market is replacement cost = $636,000 which is less than NRV and more than NRV minus normal profit margin.
Cost = $616,000.
Cost is less than market.

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