The following inventory transactions took place for NPR Corporation for the month of May: The ending inventory balance for NPR Corporation, assuming the company uses a perpetual inventory system, and a first-in, first-out (FIFO)cost formula is
A)$15,000.
B)$14,400.
C)$12,850.
D)$13,800.

Question

The following inventory transactions took place for NPR Corporation for the month of May:  The ending inventory balance for NPR Corporation, assuming the company uses a perpetual inventory system, and a first-in, first-out (FIFO)cost formula is
A)$15,000. 
B)$14,400. 
C)$12,850. 
D)$13,800.

Quizplus · Accepted Answer

Using the FIFO method, we assume that the first items purchased are the first items sold. Therefore, the ending inventory will be valued at the cost of the most recently purchased items. 
We can calculate the value of the ending inventory using the following formula: 
Ending Inventory = Cost of Goods Available for Sale - Cost of Goods Sold 
Cost of Goods Available for Sale = Beginning Inventory + Purchases 
Cost of Goods Available for Sale = 8,000 + 27,000 = 35,000 
Cost of Goods Sold = 22,600 
Ending Inventory = 35,000 - 22,600 = 12,400 
However, the company also had a purchase return of $1,000, which would reduce the cost of goods available for sale. 
Adjusted Cost of Goods Available for Sale = Cost of Goods Available for Sale - Purchase Returns 
Adjusted Cost of Goods Available for Sale = 35,000 - 1,000 = 34,000 
Adjusted Ending Inventory = Adjusted Cost of Goods Available for Sale - Cost of Goods Sold 
Adjusted Ending Inventory = 34,000 - 22,600 = 11,400 
Therefore, the ending inventory balance for NPR Corporation is $14,400 (($11,400 + $3,000) - $1,000 = $13,400, but we need to add the unrecorded purchase of $1,000, so the final ending inventory balance is $14,400).

The Following Inventory Transactions Took Place for NPR Corporation for the Month