Question 13

The inventory adjustment for the period is $5,000.

Applying the lower-of-cost-or-market rule to each inventory item results in an inventory adjustment of $5,000 for the period.

A) $4,000

This option is incorrect because an inventory adjustment of $4,000 does not reflect the application of the lower-of-cost-or-market rule. The calculation would need to show that the market value of the inventory items was higher than their cost for the adjustment to be lower than $5,000.

B) $3,000

This choice is also incorrect. An inventory adjustment of $3,000 suggests that the market values of the inventory items were significantly lower than their respective costs, which does not align with the analysis leading to the correct adjustment of $5,000.

C) $5,000

This option is correct as it accurately reflects the inventory adjustment derived from applying the lower-of-cost-or-market rule. This rule ensures that the inventory is valued at the lower amount between its historical cost and current market value, leading to this specific adjustment.

D) $2,000

This option is incorrect because an inventory adjustment of $2,000 would imply a substantial decrease in inventory value that is not consistent with the findings from applying the lower-of-cost-or-market rule. It underestimates the necessary adjustment when evaluating inventory items.

Conclusion

The correct answer of $5,000 demonstrates the proper application of the lower-of-cost-or-market rule, indicating that this adjustment reflects the accurate valuation of inventory for the period. All other options fail to align with the necessary calculations and considerations involved in this valuation method.