Everyday Wear Retail had the following balances and transactions during 2018: Be
ID: 2434387 • Letter: E
Question
Everyday Wear Retail had the following balances and transactions during 2018:
Beginning Inventory
15 units at $71
June 10
Purchased 30 units at $85
December 30
Sold 20 units
December 31
Replacement cost $66
The company maintains its records of inventory on a perpetual basis using the first-in, first-out inventory costing method. Calculate the amount of ending Merchandise Inventory on December 31, 2018 using the lower-of-cost-or-market rule.
A.
$1,065
B.
$1,650
C.
$1,980
D.
$1,775
Beginning Inventory
15 units at $71
June 10
Purchased 30 units at $85
December 30
Sold 20 units
December 31
Replacement cost $66
Explanation / Answer
Using FIFO method, the cost of ending inventory will be equal to cost of 25 units purchased on June 10 at $85 per unit.
Cost of ending inventory = 25 units*$85 = $2,125
Market value of ending inventory = 25 units*$66 = $1,650
The lower of cost or market value is $1,650.
Therefore the amount of ending Merchandise Inventory on December 31, 2018 using the lower-of-cost-or-market rule is $1,650. Hence the correct option is B) $1,650.
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