Question

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Wol 30 ( complete) This Test: 100 pts possible Jones Retail, had the following balances and transactions during 2017 Beginning Inventory June 10 December 30 December 31 20 units at $72 Purchased 30 units at $83 Sold 25 units Replacement cost $67 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, 2017 using the lower-of-cost-or-market rule. O A. $1,440 O B. $1,675 O C. $2,010 OD. $1,800

Answer 1

Answer

Option B

$1,675

Explanation

Units of ending inventory = 20 + 30 - 25

= 25 units

Cost of ending inventory using FIFO method is as follows:

Cost = Total value of purchase - Total value of sale

= {20 units of opening inventory + 30 units purchased on June 10} - {20 units of opening inventory + 5 units of June 10 purchase}

= {(20 × $72) + (30 × $83)} - {(20 × $72) + (5 × $83)}

= {$1,440 + $2,490} - {$1,440 + $415}

= $2,075

Market value of ending inventory = 25 × $67

= $1,675

As per lower of cost or market value, the lower amount between cost and market value is recorded in the books.

Hence, the amount of ending inventory is $1,675