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Part A - Santana Rey of Business Solutions is evaluating her inventory to determine whether it must be adjusted based on lower of cost or market rules. Business Solutions has three different types of software in its inventory and the following information is available for each.

Inventory items Units Cost Market

Office productivity 3 $76 $74

Desktop publishing 2 103 100

Accounting 3 90 96

Required:

1. Compute the lower of cost or market for ending inventory assuming Rey applies the lower of cost or market rule to inventory as a whole. Must Rey adjust the reported inventory value? Explain.

2. Assume that Rey had instead applied the lower of cost or market rule to each product in inventory. Under this assumption, must Rey adjust the reported inventory value? Explain.

Part B - Selected accounts and balances for the three months ended March 31 ,2012 for Business Solutions follow.

January 1 beginning inventory $ 0

Cost of goods sold 14,052

March 31 ending inventory 704

Required -

1. Compute inventory turnover and days' sales in inventory for the three months ended March 31,2012.

2. Assets the company's performance if competitors average 15 times for inventory turnover and 25 days for days' sales in inventory.

Accounting Basics, Accounting

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