Lower of Cost or Market Taylor Department Stores has just finished counting its inventory at the end of the year. After carefully compiling the results and gathering other data, the company controller reported the following information with regard to the four inventory groups held by Taylor:

a. Why is inventory typically valued at the lower of its cost or market value?

b. For each of the individual inventory categories listed, what dollar amount do you think would provide the most useful information to decision makers if reported in Taylor’s balance sheet? Why?

c. In a retail environment, what might cause the estimated net sales price of inventory to be lower than its cost?

d. If Taylor were to write down the carrying amount of its inventory, what effect would this have on its financial statements? Specifically, which accounts would be affected?

e. Would the amount of Taylor’s inventory write-down be different if the year-end valuations were based on the inventory as a whole rather than individual categories of inventory? Explain. Which approach do you think provides more useful information for decision makers?

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Inventory Group Purchase Market Price Value Women's Apparel $350,000 $460,000 Men's Apparel 250,000 315,000 Appliances 600,000 540,000 Toys 290,000 270,000