Answer to Question #213129 in Accounting for zuby

Question

Magic Carpets Inc. sells a full line of area rugs, from top quality to bargain basement. Economic conditions have hit the textile industry, and Magic Carpets accountant is concerned that its rug inventory may not worth the amount Magic paid for it. Information about three lines of rugs is found below:

a. Determine market value for each type of rug.

b. Determine lower-of-cost-or-market for each type of rug.

c. Determine if Magic Carpets has suffered a loss of value on its inventory, and if so, what the amount of loss is.

Answer 1

a. Calculation of lower of cost or market value

b.Magic carpets suffered loss in case of midflight($150 - $120 = $30) and under the radar($100 -$90 =$10). So, total loss of $40