Williams Company had the following balances and transactions during 2014. $$\begin{array} { | l | l | }
\hline \text { Beginning Inventory } & 10 \text { units at } \$ 70 \
\hline \text { June 10 } & \text { Purchased } 20 \text { units at } \$ 80 \
\hline \text { December 30 } & \text { Sold } 15 \text { units } \
\hline \text { December 31 } & \text { Replacement cost } \$ 68 \
\hline
\end{array}$$ Williams maintains its records of inventory on a perpetual basis using the last-in, first-out method. Calculate the amount of ending Merchandise Inventory at December 31, 2014 using the lower-of-cost-or-market rule.

Question

Williams Company had the following balances and transactions during 2014. $$\begin{array} { | l | l | } 
\hline \text { Beginning Inventory } & 10 \text { units at } \$ 70 \
\hline \text { June 10 } & \text { Purchased } 20 \text { units at } \$ 80 \
\hline \text { December 30 } & \text { Sold } 15 \text { units } \
\hline \text { December 31 } & \text { Replacement cost } \$ 68 \
\hline
\end{array}$$ Williams maintains its records of inventory on a perpetual basis using the last-in, first-out method. Calculate the amount of ending Merchandise Inventory at December 31, 2014 using the lower-of-cost-or-market rule.

Quizplus · Accepted Answer

To calculate the ending inventory using LIFO method, we need to start with the most recent purchase, which is 20 units at $80. Then we need to add the remaining 10 units from the beginning inventory, giving us a total of 30 units.

To apply the lower-of-cost-or-market rule, we need to compare the cost of the inventory (using LIFO method) with its replacement cost. The cost of the 30 units using LIFO method is:

- 15 units at $80 = $1,200
- 10 units at $70 = $700
Total cost = $1,900

Since the replacement cost of one unit is $68 and we have 30 units, the replacement cost of the inventory is $2,040.

The lower of cost or market is $1,900, so this is the amount that we will report as ending inventory. Therefore, the correct answer is Option C.

Williams Company Had the Following Balances and Transactions During 2014