Chapter 6, Problem 19QS

To determine

Introduction:

Cost of inventory is the Historical Cost of the item. It is that expenditure which is incurred by the concern in bringing product to the market.

Market Price is often termed as the Replacement Price of the item. It is that price which would be fetched if product is sold in the market.

The Lower of Cost or Market technique allows the company to record the loss by writing down the value of the affected inventory items. It is a conservative technique wherein the value of item is reduced to the Market value. It is applied on item-by-item basis that is separately on each item of inventory.

Lower of Cost or Market for inventory of Ames Trading Co.