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Yoshi Co.'s 12/31/2020 inventory on a FIFO basis was $980,000. The following information is available: Estimated selling price is $1,020,000; Estimated cost of disposal is $40,000; Normal profit margin is $120,000; and Current replacement cost is $900,000. At 12/31/2020, assuming Yoshi uses the loss method, what amount of loss should Yoshi record from applying LCM

Respuesta :

anthougo

Answer:

Yoshi Co.

The amount of loss that Yoshi Co. should record from applying LCM (the lower of Cost or Market price) is:

$40,000

Explanation:

a) Data and Calculations:

FIFO inventory on 12/31/2020 = $980,000

Current replacement cost = $900,000

Net realizable value = $980,000 ($1,020,000 - $40,000)

Normal profit margin = $120,000

Loss to be recognized based on current replacement cost = FIFO purchase cost minus Current replacement cost

= $80,000 ($980,000 - $900,000)

b) Under the US GAAP (generally accepted accounting principles) of prudence and conservatism, the loss of $80,000 must be recognized in the current period, since the inventory will be booked at $900,000, its current replacement cost, which is lower than the FIFO purchase cost of $980,000.

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