Ending inventory for Commodity X consists of 20 units. Under the FIFO method, the cost of the 20 units is $5 each. Current net realizable value is $4.75 per unit. Using the lower-of-cost-and-net -realizable-value rule to value inventory, the balance sheet would show ending inventory of:

Question

Quizplus · Accepted Answer

The lower-of-cost-and-net-realizable-value rule requires that inventory be reported at the lower of its historical cost or net realizable value. In this case, the net realizable value ($4.75 per unit) is lower than the cost ($5 per unit), so the inventory should be valued at $4.75 per unit. For 20 units, this amounts to 20 units * $4.75 = $95.00.

Ending Inventory for Commodity X Consists of 20 Units