Mortenson Corporation sells its product, a rare metal, in a controlled market with a quoted price applicable to all quantities. The total cost of 5,000 pounds of the metal now held in inventory is $150,000. The total selling price is $420,000, and estimated costs of disposal are $15,000. At what amount should the inventory of 5,000 pounds be reported in the balance sheet?
A) $135,000.
B) $150,000.
C) $405,000.
D) $420,000.

Question

Quizplus · Accepted Answer

The inventory should be reported at the lower of cost or net realizable value (NRV). The NRV is calculated as the selling price ($420,000) minus the estimated costs of disposal ($15,000), which equals $405,000. Since $405,000 (NRV) is higher than the cost ($150,000), the inventory should be reported at cost, which is $150,000. However, the question seems to imply a misunderstanding, as the correct choice should reflect the NRV, which is $405,000.

Mortenson Corporation Sells Its Product, a Rare Metal, in a Controlled