1. Based on a physical inventory taken on December 31, year 2, Chewy Co. determined its chocolate inventory on a FIFO basis at $26,000 with a replacement cost of $20,000. Chewy estimated that, after further processing costs of $12,000, the chocolate could be sold as finished candy bars for $40,000. Chewy’s normal profit margin is 10% of sales. Under the lower of cost or market rule, what amount should Chewy report as chocolate inventory in its December 31, year 2 balance sheet?
a. $28,000
b. $26,000
c. $24,000
d. $20,000
2. Reporting inventory at the lower of cost or market is a departure from the accounting principle of
a. Historical cost.
b. Consistency.
c. Conservatism.
d. Full disclosure.