Lower of cost-market is departure from accounting principle

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Reference no: EM131282870

1. Based on a physical inventory taken on December 31, year 2, Chewy Co. determined its chocolate inventory on a FIFO basis at $26,000 with a replacement cost of $20,000. Chewy estimated that, after further processing costs of $12,000, the chocolate could be sold as finished candy bars for $40,000. Chewy’s normal profit margin is 10% of sales. Under the lower of cost or market rule, what amount should Chewy report as chocolate inventory in its December 31, year 2 balance sheet?

a. $28,000

b. $26,000

c. $24,000

d. $20,000

2. Reporting inventory at the lower of cost or market is a departure from the accounting principle of

a. Historical cost.

b. Consistency.

c. Conservatism.

d. Full disclosure.

Reference no: EM131282870

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