Eaton Co.uses the retail inventory method to estimate its inventory for interim statement purposes.Data relating to the computation of the inventory at July 31, 2007, are as follows: $\begin{array}{lrr}&\text { Cost }& \text { Retail }\ \hline
\text { Inventory, 2/1/07 } & \$ 200,000 & \$ 250,000 \
\text { Purchases } & 1,000,000 & 1,575,000 \
\text { Markups, net } & & 175,000 \
\text { Sales } & & 1,750,000 \
\text { Estimated normal shoplifting losses } & & 20,000 \
\text { Markdowns, net } & & 110,000
\end{array}$ Under the lower-of-cost-or-market method, Eaton's estimated inventory at July 31, 2007 is
A)$72,000.
B)$84,000.
C)$96,000.
D)$120,000.

Question

Quizplus · Accepted Answer

The lower-of-cost-or-market method requires that the inventory be valued at the lower of its cost or its market value. The cost of the inventory is $1,200,000 ($200,000 + $1,000,000). The market value of the inventory is $1,445,000 ($1,575,000 - $175,000 - $110,000 - $20,000). The lower of cost or market is $1,200,000.

Eaton Couses the Retail Inventory Method to Estimate Its Inventory for for Interim