Assignment
When it comes to the warehouse costs related to Hudson and to its wholesale inventories they should account it as part of inventory. All cost of preparing inventory for sale would be recorded as inventory cost. By doing this it results in proper matching of the cost of warehousing with the revenue when the inventories are sold. This means that the firms report the revenues in the same period that they report the expense that brought in the revenue.
The lower-cost-or-market method is a conservative approach to valuing and reporting inventory. In a normal setting ending inventory is stated at historical cost. However, there are some instances in which the original cost of the ending inventory is greater than the net realizable value, and the inventory will end up losing value. In general, the lower-cost-or-market method is used to value inventory because the method produces more realistic estimates of cash flows in the future to be separated from assets. This also helps match the anticipated loss in the income statement in the period in which the price decline will occur.
When it comes to what amount Hudson's wholesale inventories be reported in the balance sheet it should be reported in the balance sheet as replacement cost. Pertaining to the lower-of-cost-or-market method, it should define replacement cost as market. This market is not allowed to exceed net realizable value nor be lower than net realize value and cannot be less than the normal profit margin. In this instance this is the opposite for Hudson's wholesale inventories should be reported at replacement cost.
Hudson's freight-in cost should be included only in the cost amounts to determine the cost-to-retail percentage. Hudson's net markdowns should not be deducted from the retail amounts to determine the cost-to-retail percentage. Since Hudson's chose not to deduct net markdowns form the retail amount to determine the cost-to-retail percentage, Hudson will produce a lower cost-to-retail percentage than they would if they had included net markdowns. By having this lower percentage to ending inventory at retail, the inventory is reported at and amount below cost, which approximates lower of average cost of market.
Psalm 119:66 "Teach me good judgment and knowledge, for I believe in your commandments." Running a business is not just about the knowledge of running the business, such as books and numbers, and knowing when to deduct mark downs. Running a business is about good judgment as well. You must know when your business needs to go back and reevaluate certain things, to be able to trust your gut on when you should and shouldn't do things. To know when to hold then and know when to fold them. I believe this relates not only to Hudson's business but all businesses. They must know what method will work best for them and their business.
References
The Holy Bible: containing the Old and New Testaments ; translated out of the original tongues and with the former translations diligently compared and revised. (1986). New York: American Bible Society.
Ozer, %. (2009). Inventory Management: Information, Coordination and Rationality. SSRN Electronic Journal. doi:10.2139/ssrn.1351628.