Question

Based on the data below, how would the inventory appear on the balance sheet, assuming that the lower of cost or market is used and the cost is determined by the First-in, first-out (FIFO) method?
Total cost: $248,000
Total market: $252,350
Lower-of-cost-or-market (LCM): $239,350
The inventory would appear in the current assets section, as follows:
Inventory-at cost (first-in, first-out method) X
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Remember that inventory is an asset account. The method of determining the cost of the inventory and the method of valuing the inventory is also reported
Learning Objective 6

Answer 1

Answer:

On the balance sheet, the inventory would appear as:

Inventory $248,000

Explanation:

In the notes to the accounts, the method of determining the cost and the method of valuing the inventory would be disclosed.  It is not disclosed on the balance sheet, but on the notes to the accounts.

It would make the balance sheet appear unorganized to include details that should have been included in the notes.  The presentation of information is very important in order to ensure that those reading the information understand it.  Understanding is not aided by including information that could be displayed elsewhere.

Answer 2

Answer:

$239,350

Explanation:

The inventory would appear in the current assets section, as follows: Inventory-at lower of cost (first-in, first-out method) or net realizable value $239,350