Williams Company had the following balances and transactions during 2014. $$\begin{array} { | l | l | }
\hline \text { Beginning Inventory } & 10 \text { units at } \$ 75 \
\hline \text { June 10 } & \text { Purchased } 20 \text { units at } \$ 78 \
\hline \text { December 30 } & \text { Sold } 15 \text { units } \
\hline \text { December 31 } & \text { Replacement cost } \$ 80 \
\hline
\end{array}$$ 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. $$\begin{array} { | l | l | } 
\hline \text { Beginning Inventory } & 10 \text { units at } \$ 75 \
\hline \text { June 10 } & \text { Purchased } 20 \text { units at } \$ 78 \
\hline \text { December 30 } & \text { Sold } 15 \text { units } \
\hline \text { December 31 } & \text { Replacement cost } \$ 80 \
\hline
\end{array}$$ 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

First, let's calculate the cost of goods sold (COGS):
- COGS = (10 x $75) + (5 x $78) = $1,140

Using the lower-of-cost-or-market rule, we need to compare the original cost of the inventory (LIFO) with the replacement cost of the inventory. The replacement cost is given as $80 per unit, which is higher than the LIFO cost of $78 per unit. Therefore, we use the LIFO cost to value the merchandise inventory.

At December 31, 2014, we have 15 units remaining in inventory. Using LIFO, the cost of the remaining inventory is calculated as follows:
- Remaining inventory = (10 + 20 - 15) = 15 units
- LIFO cost of remaining inventory = 15 x $78 = $1,170

Since the LIFO cost is lower than the original cost of inventory, we use the LIFO cost to value the remaining inventory. Therefore, the amount of ending Merchandise Inventory at December 31, 2014 is $1,170.

Williams Company Had the Following Balances and Transactions During 2014