Purr Company's ending inventory was $106,700 at cost and $113,500 at replacement cost. Before consideration of the lower-of-cost-or-market rule, the company's cost of goods sold was $60,000. Which of the following statements reflect the correct application of the lower-of-cost-or-market rule?

Question

Quizplus · Accepted Answer

The lower-of-cost-or-market rule requires inventory to be reported at the lower of its cost or market value. Since the cost ($106,700) is lower than the replacement cost ($113,500), the ending inventory remains at cost, and the cost of goods sold remains unchanged at $60,000.

Purr Company's Ending Inventory Was $106,700 at Cost and $113,500