Detailed Answer
Answer (D) is correct.
REQUIRED: The loss resulting from applying the lower of cost or market rule.
DISCUSSION: As indicated below, the $180,000 replacement cost falls between the $194,000 ceiling and the
$164,000 floor. Hence, it will be used as market in the LCM determination. Because of $180,000 market value is $20,000 lower than the $200,000 historical cost, the inventory should be valued at $180,000 and a $20,000 loss recognized.
NRV ($204,000- $10,000) $194,000
Replacement cost $180,000
NRV- Normal profit ($194,000- $30,000) $164,000
Answer (A) is incorrect. A $20,000 loss is recognized. Answer (B) is incorrect. The amount of $6,000 results from the difference between historical cost and net realizable value (ceiling). Answer (C) is incorrect. The amount of $14,000 results from the difference between the replacement cost and the net realizable value (ceiling).