At the end of the year, Ian Co. determined its inventory to be $258,000 on a LIFO (last in, first out) basis. The current replacement cost of this inventory was $230,000. Ian estimates that it could sell the inventory for $275,000 at a disposal cost of $14,000. If Ian's normal profit margin for its inventory was $10,000, what would be its net carrying value?

 At the end of the year, Ian Co. determined its inventory to be $258,000 on a LIFO (last in, first out) basis. The current replacement cost of this inventory was $230,000. Ian estimates that it could sell the inventory for $275,000 at a disposal cost of $14,000. If Ian's normal profit margin for its inventory was $10,000, what would be its net carrying value?
$244,000
$251,000
$258,000
$261,000

Answer

$251,000

 You Answered Correctly!
The "ceiling" for LCM (lower of cost or market) valuation is $261,000 net realizable value ($275,000 selling price less $14,000 disposal cost). The "floor" is net realizable value less normal profit margin or $251,000 ($261,000 − $10,000). Replacement cost of $230,000 is below the floor so "market" value is the floor, or middle, of the three amounts ($251,000). This amount is less than cost of $258,000. Therefore, the lower of cost or market valuation is $251,000.