SRB Company had an inventory loss from a market price decline that occurred in the first quarter. The loss was not expected to be restored in the fiscal year. However, in the third quarter, the inventory had a market price recovery that exceeded the first-quarter decline. For interim financial reporting, the dollar amount of net inventory should? a. Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the market price recovery. b. Not be affected in either the first quarter or the third quarter. c. Not be affected in the first quarter and increase in the third quarter by the amount of the market price recovery that exceeded the amount of the market price decline. d. Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the decrease in the first quarter.

Question

Business

Maddison

2 November, 07:20

SRB Company had an inventory loss from a market price decline that occurred in the first quarter. The loss was not expected to be restored in the fiscal year. However, in the third quarter, the inventory had a market price recovery that exceeded the first-quarter decline. For interim financial reporting, the dollar amount of net inventory should? a. Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the market price recovery. b. Not be affected in either the first quarter or the third quarter. c. Not be affected in the first quarter and increase in the third quarter by the amount of the market price recovery that exceeded the amount of the market price decline. d. Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the decrease in the first quarter.

+1

Answers (1)

Know the Answer?

Bridget Hart · Answer 1

d. Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the decrease in the first quarter.

Explanation:

There is a standard rule to record the inventory that states that all the inventory shall be valued and recorded at cost or net realizable value whichever is less.

Accordingly when there is decrease in the price level, in first quarter, goods will be valued at lower value that is market value, as assumed it is lower than cost.

In the third quarter when the market value is high then the value on which the inventory shall be recorded is cost, because in comparison to cost or market value, cost is less.

Ultimately statement d is correct.