Castle TV, Inc. purchased 1,000 monitors on 5 January at a per-unit cost of $185, and another 1,000 units on 31 January at a per-unit cost of $230. In the period from 1 February through year-end, the company sold 1,800 units of this product. At year-end, 200 units remained in inventory.
-Assume that the net realizable value of this monitor at year-end is $220 per unit. Using the FIFO flow assumption and the lower-of-cost-and-net-realizable-value rule, Castle TV should write down the carrying amount of this inventory by:

Question

Quizplus · Accepted Answer

The lower-of-cost-and-net-realizable-value rule states that inventory should be valued at the lower of its cost or net realizable value. The cost of the monitor is $300 per unit, which is higher than the net realizable value of $220 per unit. Therefore, the carrying amount of this inventory should be written down to the net realizable value, resulting in a write-down of $80 per unit ($300 - $220). Since Castle TV has 25 units in inventory, the total write-down would be $2,000 ($80 x 25). Therefore, the correct answer is C) $2,000.