Misty Company had 20,000 units of ending inventory that were recorded at their cost of $5.00 per unit using the first-in, first-out (FIFO)method. The current replacement cost is $4.25 per unit. Which of the following amounts would be reported as Ending Merchandise Inventory on the balance sheet using the lower-of-cost-or-market rule?

Question

Quizplus · Accepted Answer

The lower-of-cost-or-market rule requires a company to report inventory at the lower of its cost or its market value.

In this case, the cost of Misty Company's ending inventory is $5.00 per unit, which translates to a total cost of:

$5.00 per unit x 20,000 units = $100,000

The market value of the inventory is the replacement cost, which is $4.25 per unit. Therefore, the total market value of the inventory is:

$4.25 per unit x 20,000 units = $85,000

Since the market value is lower than the cost, Misty Company would report its ending inventory on the balance sheet using the market value of $85,000. Therefore, the correct answer is D.

Misty Company Had 20,000 Units of Ending Inventory That Were