Blossom Distribution Co. has determined its December 31, 2020 inventory on a LIFO basis at $962000. Information pertaining to that inventory follows: Estimated selling price $1000000 Estimated cost of disposal 38000 Normal profit margin 118000 Current replacement cost 882000 Blossom records losses that result from applying the lower-of-cost-or-market rule. At December 31, 2020, the loss that Blossom should recognize is

The answer is $118,000

Explanation:

Solution

Given that:

Now

The selling price estimated is  = $1,000,000

Less: Cost of disposal = $38,000

Less: Normal profit margin = $118,000

The net realizable value = $844,000

The market value of inventory is lesser of Net realizable value

Thus

The net realizable value = $844,000

The cost of replacement  = $225,000

The Market value of inventory greater of the above) = $844,000

Inventory is valued at cost or market value which ever is low

Then

Cost = $962,000

The market value = $844,000

Hence

The value of Inventory (lesser of the above) = $844,000.

Now,

The loss = $962,000 - $844,000

= $118,000

Therefore,  At December 31, 2020, the loss that Blossom should recognize is $118,000

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