Rowan Company has four different categories of inventory.The quantity,cost,and market value for each of the inventory categories are as follows:

The company carries inventory at lower-of-cost-or-market applied to the entire stock of inventory in the aggregate.How would the implementation of the lower-of-cost-or-market rule impact the elements of the company's financial statements?
A)Increase total assets and stockholders' equity by $55.50.
B)Decrease total assets and stockholders' equity by $101.00.
C)Decrease total assets and stockholders' equity by $79.00.
D)Have no effect on total assets or stockholders' equity.

Question

Rowan Company has four different categories of inventory.The quantity,cost,and market value for each of the inventory categories are as follows:

The company carries inventory at lower-of-cost-or-market applied to the entire stock of inventory in the aggregate.How would the implementation of the lower-of-cost-or-market rule impact the elements of the company's financial statements?
A)Increase total assets and stockholders' equity by $55.50. 
B)Decrease total assets and stockholders' equity by $101.00. 
C)Decrease total assets and stockholders' equity by $79.00. 
D)Have no effect on total assets or stockholders' equity.

Quizplus · Accepted Answer

Total cost = (220 × $4.40)+ (130 × $6.20)+ (100 × $10.00)+ (25 × $20.50)= $3,286.50
Total market value = (220 × $4.60)+ (130 × $6.00)+ (100 × 9.25)+ (25 × $25.00)= $3,342
Because the total market value is higher than total cost,no write-down is necessary.

Rowan Company Has Four Different Categories of Inventory