Chapter 10, Problem 4SSC

Surfing the Standards Case 4: Lower of Cost or Market

More Toys, Inc. a toy retailer that has a calendar year-end and prepares interim financial statements quarterly. As of March 31, 20×4, More Toys has 10,000 Gabriella dolls in stock. The Gabriella dolls are from a recent movie that was showing in the theatres. The dolls cost More Toys, Inc $20 each, and the replacement cost for each doll is also $20.

The average selling price for the dolls in the fourth quarter of 20×3 was $24. However, due to the fact that the movie was no longer showing in theatres, children were not as interested in the doll. In response, More Toys reduced the price of the dolls and is now selling them for $18 each. More Toys has decided to take the dolls off the shelves and keep them until the third quarter of 20×4 when the movie will begin streaming on Webpix. The management of More Toys believes that they can then sell the Gabriella dolls for $22 per doll.

Should More Toys record a lower-of-cost-or-market write-down for its Gabriella dolls on its March 31.

20×4, interim financial statements? Support your answer using the Codification.