Madison co. has determined its year-end inventory on a lifo basis to be $600,000. information pertaining to that inventory is as follows:

selling price $ 720,000

costs to sell 30,000

normal profit margin 80,000

replacement cost 620,000

what should be the reported value of madison's inventory?

a) $600,000

b)$620,000

c) $690,000

d) $610,000

Reported value of Madison's inventory = lower of cost or Market value = $600,000 (option A)

Explanation:

Note

As per US GAAP , inventory is to be valued at lower of cost or market value.

Where , market value is always a replacement cost except in following two situations ;

When Replacement cost is above Market ceiling [ ie Selling price - Costs to sell ] , then Market value = Market ceiling

When Replacement cost is below Market floor [ ie Selling price - Costs to sell - Normal profit ] , then Market value = Market floor

Answer

Replacement cost = $620,000

Market ceiling = $720,000 - $30,000 = $690,000

Market floor = $720,000 - $30,000 - 80,000 = $610,000

Therefore , Market Value = Replacement cost = $620,000

Cost = $600,000 (given)

a.   is the correct choice.

good luck. : )