Question

Switzer, Inc. has 8 computers which have been part of the inventory for over two years. Each computer cost $600 and originally retailed for $900. At the statement date, each computer has a current replacement cost of $400. What lower-of-cost-or-market value should Switzer, Inc., have for the computers at the end of the year?
(A) $3,200.
(B) $4,800.
(C) $2,400.
(D) $7,200.

Answer 1

Answer:

(A) $3,200.

Explanation:

cost 600  replacement cost = market cost = 400

lower market 400

8 computers x 400 = 3,200

Notice: Under the lower-of-cost-or-market we can only recognize impairment. We cannot increase the value of assets under this method.