The Cohen Corp. has inventory at a cost of $450 million worth of Model 7 of its popular tablet at the end of fiscal year 2014. It is planning to announce the sale of Model 8 in a month. Once Model 8 is announced, it will not be able to sell Model 7 profitably. It expects that it will only be able to sell the $450 million of inventory for $300 million.

A. What reserve for inventory obsolescence, if any, should be booked in 2014?

B. Assume that it records a reserve of $150 million, and sells the inventory for the expected price of $300 million. What will be the expense affecting income in

a. 2014?

b. 2015?

c. Combined between the two years?

C. Assume that in 2014, Cohen records a “conservative” reserve for inventory obsolescence of $200 million. In 2015, it sells the inventory for $300 million. What will be the expense affecting income in

a. 2014?

b. 2015?

c. Combined between the two years?
D. Assume that in 2014, Cohen records an “aggressive” reserve for inventory obsolescence of $50 million. In 2015, it sells the inventory for $300 million. What will be the expense affecting income in

a. 2014?

b. 2015?

c. Combined between the two years?