The 2011 inventory activity for Helio Brothers, a discount retailer that prepares financial statements under IFRS using the FIFO cost flow assumption, is provided below.
Many of the items in the company’s inventory at the end of 2011 were judged to be outdated, and on average the market value of the remaining inventory was estimated at $1.50 per item.
a. Compute Helio’s ending inventory and net income for 2011.
b. Early in 2012 styles appeared to change, and the average market price of the inventory written down at the end of 2011 rebounded to $2.80 per item. Record the entry made by Helio to recognize the inventory recovery. What entry would Helio record if it used U.S. GAAP instead of IFRS?