Compass Box in UK and US Based GAAP – Answer two questions based on the following requirement and the uploaded case. Even though Compass Box is a UK company, your answers should be based on US GAAP.
1. Suppose Compass Box had whiskey that they had bought 6 years ago as new fill whiskey with inventoriable costs incurred to date (i.e., historic cost) of £300, completion and selling cost of £130 and an expected selling price of £600.
Assume that the cost to buy comparable whiskey on the spot market (i.e., replacement cost) is more than £300.
What journal entries would be required if:
a. The selling price dropped to £500?
b. The selling price dropped to £400?
c. The selling price remained at £600, but the replacement cost dropped to £100?
d. The selling price dropped to £400 and the replacement cost dropped to £100?
e. The selling price previously dropped to £400, and now recovered to £650?
2. If you were John Glaser, Compass Box’s founder, and whiskey maker, what would you do? Why? How will you measure the risks and rewards?