1. What method(s) might be used in the accounts to record a loss due to a price decline in the inventories? Discuss.
2. What factors might call for inventory valuation at sales prices (net realizable value or market price)?
3. Under what circumstances is relative sales value an appropriate basis for determining the price assigned to inventory?
4. At December 31, 2012, Ashley Co. has outstanding purchase commitments for 150,000 gallons, at $6.20 per gallon, of a raw material to be used in its manufacturing process. The company prices its raw material inventory at cost or market, whichever is lower. Assuming that the market price as of December 31, 2012, is $5.90, how would you treat this situation in the accounts?
5. What are the major uses of the gross profit method?