The Following Information Pertains to Inventory Held by a Company

question 25

Multiple Choice

The following information pertains to inventory held by a company on December 31, 2011. $$\begin{array} { l r } \text { Historical cost } & \$ 30,000 \\\text { Replacement cost } & \$ 20,000 \\\text { Net realizable value } & \$ 27,000 \\\text { Normal profit margin } & 20 \%\end{array}$$
-What is the amount of inventory loss shown on the income statement under U.S. GAAP?

• A) $0.
• B) $3,000.
• C) $14,000.
• D) $10,000.
• E) $8,400. The amount of loss is the writedown of inventory from $30,000 to $21,600 = $8,400.

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Definitions:

Endocytosis

A cellular process in which substances are brought into the cell by engulfing them with the cell membrane.

Alveoli

Tiny air sacs in the lungs where the exchange of oxygen and carbon dioxide takes place.

Capillaries

Small blood vessels in the body's circulatory system that facilitate the exchange of water, oxygen, carbon dioxide, and many other nutrients and waste substances between blood and tissues.

Active Transport

The movement of molecules across a cell membrane from a region of lower concentration to one of higher concentration, using energy usually in the form of ATP.