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Lower of Cost or Net Realizable Value Rule Blaedon Co. makes ongoing design refinements to lawnmowers that are produced for it by contractors. Blaedon stores the lawnmowers in its own warehouse and sells them at list price, directly to retailers. Blaedon uses the FIFO inventory method. Approximately two-thirds of new lawnmower sales involve trade-ins. For each used lawnmower traded in and returned to Blaedon, retailers receive a $40 allowance regardless of whether the trade-in was associated with a sale of a 2020 or 2021 model. Blaedon’s net realizable value on a used lawnmower averages $25. At December 31, 2020, Blaedon’s inventory of new lawnmowers includes both 2020 and 2021 models. When the 2021 model was introduced in September 2020, the list price of the remaining 2020 model lawnmowers was reduced below cost. Blaedon is experiencing rising costs. Required: 1. At December 31, 2020, how should Blaedon determine the carrying amounts assigned to its lawnmower inventory of: a. 2021 models b. 2020 models 2. Considering only the 2021 model lawn mower, explain the impact of the FIFO cost flow assumptions on Blaedon’s 2020: a. income statement amounts b. balance sheet amounts

BuyFind

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
Publisher: Cengage Learning
ISBN: 9781337788281
BuyFind

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
Publisher: Cengage Learning
ISBN: 9781337788281

Solutions

Chapter
Section
Chapter 8, Problem 3C
Textbook Problem

Lower of Cost or Net Realizable Value Rule

Blaedon Co. makes ongoing design refinements to lawnmowers that are produced for it by contractors. Blaedon stores the lawnmowers in its own warehouse and sells them at list price, directly to retailers. Blaedon uses the FIFO inventory method. Approximately two-thirds of new lawnmower sales involve trade-ins. For each used lawnmower traded in and returned to Blaedon, retailers receive a $40 allowance regardless of whether the trade-in was associated with a sale of a 2020 or 2021 model. Blaedon’s net realizable value on a used lawnmower averages $25.

At December 31, 2020, Blaedon’s inventory of new lawnmowers includes both 2020 and 2021 models. When the 2021 model was introduced in September 2020, the list price of the remaining 2020 model lawnmowers was reduced below cost. Blaedon is experiencing rising costs.

Required:

  1. 1. At December 31, 2020, how should Blaedon determine the carrying amounts assigned to its lawnmower inventory of:
    1. a. 2021 models
    2. b. 2020 models
  2. 2. Considering only the 2021 model lawn mower, explain the impact of the FIFO cost flow assumptions on Blaedon’s 2020:
    1. a. income statement amounts
    2. b. balance sheet amounts

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Chapter 8 Solutions

Intermediate Accounting: Reporting And Analysis
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