Everyday Wear Retail had the following balances and transactions during 2018: $$\begin{array} { | l | l | }
\hline \text { Beginning Inventory } & 15 \text { units at } \$ 72 \
\hline \text { June 10 } & \text { Purchased } 30 \text { units at } \$ 85 \
\hline \text { December 30 } & \text { Sold 20 units } \
\hline \text { December 31 } & \text { Replacement cost } \$ 67 \
\hline
\end{array}$$ The company maintains its records of inventory on a perpetual basis using the first-in, first-out inventory costing method. Calculate the amount of ending Merchandise Inventory on December 31, 2018 using the lower-of-cost-or-market rule.

Question

Everyday Wear Retail had the following balances and transactions during 2018: $$\begin{array} { | l | l | } 
\hline \text { Beginning Inventory } & 15 \text { units at } \$ 72 \
\hline \text { June 10 } & \text { Purchased } 30 \text { units at } \$ 85 \
\hline \text { December 30 } & \text { Sold 20 units } \
\hline \text { December 31 } & \text { Replacement cost } \$ 67 \
\hline
\end{array}$$ The company maintains its records of inventory on a perpetual basis using the first-in, first-out inventory costing method. Calculate the amount of ending Merchandise Inventory on December 31, 2018 using the lower-of-cost-or-market rule.

Quizplus · Accepted Answer

To calculate the ending inventory value using the lower-of-cost-or-market rule, we need to compare the cost and the market value of individual inventory items and record the lower value as the inventory value.

We start with the beginning inventory balance of $1,500 and add the purchases during the year, which total $16,800. This results in a total cost of goods available for sale of $18,300.

Next, we look at the market value of the inventory items. The market value is the replacement cost of the inventory, which is the cost that would be incurred to replace the inventory if it were lost or damaged. In this case, we are given that the market value of the inventory is $1,675.

Since the market value of the inventory is lower than the cost of goods available for sale, we use the market value as the ending inventory value. Therefore, the ending Merchandise Inventory on December 31, 2018 using the lower-of-cost-or-market rule is $1,675, which is option B.

Everyday Wear Retail Had the Following Balances and Transactions During