What should be the carrying value of Sullivan's inventory?
A)$500,000.
B)$440,000.
C)$430,000.
D)$490,000.

Question

Quizplus · Accepted Answer

Based on the lower of cost or market (LCM) rule, the carrying value of Sullivan's inventory should be recorded at the lower of its historical cost or its net realizable value. The historical cost of inventory is given as $450,000. However, the market value of inventory (i.e., net realizable value) is determined as follows: 
- Laptops: 90 x 4,000 = $360,000 
- Tablets: 50 x 6,000 = $300,000
- Smartphones: 150 x 1,500 = $225,000 
Thus, the total net realizable value of inventory is $885,000. 
Comparing the historical cost ($450,000) to the net realizable value ($885,000), it is clear that the inventory needs to be written down to reflect the lower market value. Therefore, the carrying value of Sullivan's inventory should be $440,000, as this is the lower of the two values. The answer is B.

What Should Be the Carrying Value of Sullivan's Inventory