Williams Company had the following balances and transactions during 2013. $$\begin{array} { | l | l | }
\hline \text { Beginning inventory } & 10 \text { units at } \$ 70 \
\hline \text { June } 10 & \text { Purchased } 20 \text { units at } \$ 80 \
\hline \text { December } 30 & \text { Sold } 15 \text { units } \
\hline \text { December } 31 & \text { Replacement cost } \$ 60 \
\hline
\end{array}$$ What would the company's inventory amount be on the December 31,2013 balance sheet if the perpetual FIFO method is used? (Answers are rounded to the nearest dollar.)

Question

Williams Company had the following balances and transactions during 2013. $$\begin{array} { | l | l | } 
\hline \text { Beginning inventory } & 10 \text { units at } \$ 70 \
\hline \text { June } 10 & \text { Purchased } 20 \text { units at } \$ 80 \
\hline \text { December } 30 & \text { Sold } 15 \text { units } \
\hline \text { December } 31 & \text { Replacement cost } \$ 60 \
\hline
\end{array}$$ What would the company's inventory amount be on the December 31,2013 balance sheet if the perpetual FIFO method is used? (Answers are rounded to the nearest dollar.)

Quizplus · Accepted Answer

Under the perpetual FIFO method, the first items purchased are the first ones sold. By the end of the year, 15 units are sold. The sales would first deplete the 10 units from the beginning inventory at $70 each, and then 5 units from the June purchase at $80 each. The ending inventory would consist of the remaining 15 units from the June purchase at $80 each, totaling $1,200 (15 units * $80). However, since the replacement cost is $60, which is lower than the cost at which the remaining inventory was purchased, the lower of cost or market (LCM) rule applies. Therefore, the inventory should be valued at the lower replacement cost of $60 per unit, resulting in an ending inventory value of $900 (15 units * $60).

Williams Company Had the Following Balances and Transactions During 2013