Question
At the end of the current fiscal year, Demco Inc. had 3000 units of Product A that was purchased for $10 per unit. On the
At the end of the current fiscal year, Demco Inc. had 3000 units of Product A that was purchased for $10 per unit. On the last day of the fiscal year the controller was advised by the supplier of Product A that due to an extreme shortage of raw materials required to manufacture Product A, the price had doubled and it would now cost Demco Inc. $20 to buy it. With this new information the controller valued the 3,000 units in inventory at the new cost of $20 and created an additional $30,000 of profit. One month later during the audit of Demco Inc., you PA, confirmed the new price with the supplier and you are informed that the price had dropped to $15 per unit due to new sources of raw materials. What adjustment (if any) is required to inventory?
Question 29 options:
| An adjustment to decrease inventory by $45,000 |
| No adjustment is required since the drop in price occurred after year-end |
| An adjustment to decrease inventory by $30,000 |
| An adjustment to decrease inventory by $15,000 |
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