On December 31, 2014, Cruise Company has 10,000 units of an inventory item, which cost $40 per unit when purchased on June 15, 2014. The selling price was $60 per unit. On December 30, 2014, the replacement cost was $36 per unit. At what amount should the 10,000 units of inventory be reported at on the December 31, 2014 balance sheet?

Question

Quizplus · Accepted Answer

The inventory should be reported at the lower of cost or market. 
Cost = 10,000 units x $40 per unit = $400,000.
Market = 10,000 units x $36 per unit = $360,000.
Since the market value ($360,000) is lower than the cost ($400,000), the inventory should be reported at $360,000 on the December 31, 2014 balance sheet. Choice C is the correct answer.

On December 31, 2014, Cruise Company Has 10,000 Units of an Inventory