A local Chevrolet dealership carries the following types of vehicles:

Because of recent increases in gasoline prices, the car dealership has noticed a reduced demand for its SUVs, vans, and trucks.
Required:
1. Compute the total cost of the entire inventory.
2. Determine whether each inventory item would be reported at cost or market. Multiply the quantity of each inventory item by the appropriate cost or market amount and place the total in the "Lower-of-Cost-or-Market" column. Then determine the total for that column.
3. Compare your answers in Requirement 1 and Requirement 2 and then record any necessary adjustment to write down inventory from cost to market value.
4. Discuss the financial statement effects of using lower-of-cost-or-market to report inventory.

Transcribed Image Text:

Market (replacement cost) per Unit $20,000 16,000 14,000 19,000 35,000 23,000 Lower-of Cost-or Market Inventory Items Vans Trucks 2-door sedans 4-door sedans Sports cars SUVs Quantity Cost per Unit $22,000 17,000 12,000 16,000 32,000 28,000 6 3