On December 31, 2016, Cruise Company has 10,000 units of an inventory item, which cost $40 per unit when purchased on June 15, 2016. The selling price was $60 per unit. On December 30, 2016 it was determined that disposal cost was $24 per unit. At what amount should the 10,000 units of inventory be reported at on the December 31, 2016 balance sheet?

Question

Quizplus · Accepted Answer

The inventory should be reported at the lower of cost or net realizable value (NRV).

Cost per unit = $40
Selling price per unit = $60
Disposal cost per unit = $24

Therefore, NRV per unit = Selling price - Disposal cost = $60 - $24 = $36

Since the cost per unit ($40) is higher than the NRV per unit ($36), we should use NRV to value the inventory.

Total NRV of 10,000 units = 10,000 x $36 = $360,000.

Thus, the 10,000 units of inventory should be reported at $360,000 on the December 31, 2016 balance sheet. Therefore, the correct answer is B).

On December 31, 2016, Cruise Company Has 10,000 Units of an Inventory