Cohen Company Follows U Cohen Company's Balance Sheet at December 31, 2018 Reports the for Inventory

question 64

Essay

Cohen Company follows U.S. GAAP and uses the lower-of-cost-or-market rule for inventory. At December 31, 2018, the following data is available:
$$\begin{array} { | l | l | } \hline \text { Cost under LIFO } & \$ 420 \text { per unit } \\\hline \text { Current Replacement Cost } & \$ 365 \text { per unit } \\\hline \text { Expected Selling Price } & \$ 400 \text { per unit } \\\hline \text { Estimated Disposal Costs } & \$ 50 \text { per unit } \\\hline \text { Normal Profit } & 25 \% \text { of selling price } \\\hline \text { Quantity of Ending Inventory } & 100,000 \text { units } \\\hline\end{array}$$
Cohen Company's balance sheet at December 31, 2018 reports the following:
$$\begin{array} { | l | r | } \hline \text { Inventory at cost } & \$ 42,000,000 \\\hline \text { Less: Allowance to reduce inventory to market } & 5,500,000 \\\hline \text { Net } & \$ 36,500,000 \\\hline\end{array}$$
Required:
Determine the correct balance for inventory at December 31, 2018.

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Definitions:

Income Tax

Tax levied on company income.

AASB 112

The Australian Accounting Standards Board's standard regarding Income Taxes, which dictates the accounting treatment for current and deferred tax.

Deferred Tax

A tax liability or asset that arises due to the temporary differences between the accounting income and the taxable income.

Income Tax Expense

The cost incurred by individuals or corporations due to income taxes.