Williams Company had the following balances and transactions during 2013. $$\begin{array} { | l | l | }
\hline \text { Beginning inventory } & 10 \text { units at } \$ 70 \
\hline \text { June } 10 & \text { Purchased } 20 \text { units at } \$ 80 \
\hline \text { December } 30 & \text { Sold } 15 \text { units } \
\hline \text { December } 31 & \text { Replacement cost } \$ 78 \
\hline
\end{array}$$ 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. $$\begin{array} { | l | l | } 
\hline \text { Beginning inventory } & 10 \text { units at } \$ 70 \
\hline \text { June } 10 & \text { Purchased } 20 \text { units at } \$ 80 \
\hline \text { December } 30 & \text { Sold } 15 \text { units } \
\hline \text { December } 31 & \text { Replacement cost } \$ 78 \
\hline
\end{array}$$ 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 beginning inventory of 10 units at $70 each, and then 5 units from the June purchase at $80 each. This leaves 15 units from the June purchase in inventory. The ending inventory valuation would be 15 units at $80 each, totaling $1,200. However, since the replacement cost is $78, and under FIFO, the cost of the remaining inventory would not be adjusted to the replacement cost directly. Therefore, the ending inventory is valued at the cost of the remaining units, which is 15 units at $80 each, totaling $1,200. The correct answer is A, not B as initially indicated. This correction addresses the mistake in the explanation regarding the replacement cost's impact under FIFO and the calculation of the ending inventory value.

Williams Company Had the Following Balances and Transactions During 2013