Mystical Duds estimates that unsold women's clothing with a carrying value of $500 million has minimal market value given a change in fashion. To reflect the minimal market value of the merchandise, Mystical Duds
a. would record an impairment loss of $500 million, reducing the carrying value of this inventory to zero.
b. would recognize zero cost of goods sold and a gross margin of $100 million on the sale, for a net margin of -$400 (=-$500 + $100) million over the two periods, if the firm sells the clothes for $100 million in a subsequent accounting period.
c. would record an impairment loss of $400 million, reducing the carrying value of this inventory to $100 million.
d. would recognize $100 million of cost of goods sold and a gross margin of zero on the sale, for a net margin of -$400 (=-$500 + $100) million over the two periods, if the firm sells the clothes for $100 million in a subsequent accounting period, if the firm sells the clothes for $100 million in a subsequent accounting period.
e. would record/recognize choices a and b.
E
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