The following two inventory items were purchased as a group in a liquidation sale for $1,000.

 The following two inventory items were purchased as a group in a liquidation sale for $1,000.

Replacement    Carrying Value
Item    Cost    On Seller's Books
A    $400    $390
B    700    755
The firm purchasing the inventory records item A at what amount?

$341
$390
$364
$500

Answer

$364

 You Answered Correctly!
When items are purchased as a group, the total cost of the group is allocated to the individual items based on fair value. Replacement cost is the appropriate value to use in this case. The total replacement cost of the items is $1,100 ($400 + $700). Therefore, Item A is allocated 4/11 of the purchase cost, or $364 = ($400/$1,100)$1,000.