Williams Inc.had the following balances and transactions during 2014. The company 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 Inc.had the following balances and transactions during 2014.  The company 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 Merchandise Inventory at December 31, 2014 using the lower-of-cost-or-market rule, we need to compare the cost and the market value of the inventory, and use the lower value.

First, let's calculate the cost of the ending inventory:

Beginning Inventory = $2,000 
Purchases = $7,500 
Cost of Goods Available for Sale = $9,500 
COGS = $8,360

So, the cost of the ending inventory is: 
Cost of Goods Available for Sale - COGS = $9,500 - $8,360 = $1,140

Next, we need to compare the cost of the inventory with its market value. The market value is defined as the current replacement cost or the net realizable value, whichever is lower.

We are not given the current replacement cost, but we are given the net realizable value, which is $750.

Since the net realizable value is lower than the cost, we need to use it to value the ending inventory. Therefore, the amount of ending Merchandise Inventory at December 31, 2014 using the lower-of-cost-or-market rule is $750.

The best choice is B, $1,140.