. Which of the following concerning the “lower-of-cost-or-market” rule is not true?
a. If the replacement cost of an inventory item falls below its historical cost, the value of the item should be written down.
b. If the market value of an item exceeds its historical cost, it should be written up and a gain should be recorded.
c. It is possible for an item’s net realizable value to fall below its historical cost.
d. Lower-of-cost-or-market is an example of the conservatism principle.
Romulus Company sells maps. At the end of the year, Romulus’s inventory account indicated that it had 2,900 maps of Italy on hand that had originally cost $30 each. An inventory count showed that only 2,875 were actually in ending inventory. What journal entry should Romulus make if management believes the discrepancy is due to errors in the accounting process?
Real South Products has $400,000 worth of inventory on hand on January 1. Between January and March 13, Real South purchased an additional $190,000 in inventory and sales of $530,000 had been made. On March 13, Real South’s warehouse flooded and all but $15,000 worth of inventory was ruined. Real South has an average gross profit percentage of 25 percent. What would be the approximate value of the inventory destroyed in the flood?