Landers, Inc

question 161

Multiple Choice

Landers, Inc. has 7 units in inventory on December 31. The units were purchased in November for $180 each. The price lists from suppliers indicate the current replacement cost of the item to be $174 each. What is the effect on gross profit if Landers values its ending merchandise inventory using the lower-of-cost-or-market rule?

• A) The gross profit would increase by $6.
• B) The gross profit would not be affected.
• C) The gross profit would decrease by $42.
• D) The gross profit would increase by $42.

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Definitions:

Shoeleather Costs

The metaphorical cost of time and effort that people spend trying to counteract the effects of inflation, such as holding less cash and making more frequent trips to the bank.

Inflation Rates

The percentage increase in the price level of goods and services in an economy over a period of time, reflecting the rate of inflation.

Real Interest Rate

The rate of interest an investor expects to receive after allowing for inflation, reflecting the true cost of borrowing.

Nominal Interest Rate

The interest rate before adjusting for inflation; the stated interest rate of a given bond or loan.