Boulevard Home Furnishings had the following balances and transactions during 2018. $$\begin{array} { | l | l | }
\hline \text { Beginning Inventory } & 20 \text { units at } \$ 71 \
\hline \text { June 10 } & \text { Purchased } 40 \text { units at } \$ 85 \
\hline \text { December 30 } & \text { Sold 25 units } \
\hline \text { December 31 } & \text { Replacement cost } \$ 87 \
\hline
\end{array}$$ The company maintains its records of inventory on a perpetual basis using the FIFO inventory costing method. Calculate the amount of ending Merchandise Inventory at December 31, 2018 using the lower-of-cost-or-market rule.

Question

Boulevard Home Furnishings had the following balances and transactions during 2018. $$\begin{array} { | l | l | } 
\hline \text { Beginning Inventory } & 20 \text { units at } \$ 71 \
\hline \text { June 10 } & \text { Purchased } 40 \text { units at } \$ 85 \
\hline \text { December 30 } & \text { Sold 25 units } \
\hline \text { December 31 } & \text { Replacement cost } \$ 87 \
\hline
\end{array}$$ The company maintains its records of inventory on a perpetual basis using the FIFO inventory costing method. Calculate the amount of ending Merchandise Inventory at December 31, 2018 using the lower-of-cost-or-market rule.

Quizplus · Accepted Answer

The correct answer is A.The ending Merchandise Inventory at December 31, 2018 is $2,975. This is calculated as follows:Beginning Inventory: 20 units at $71 = $1,420June 10 Purchase: 40 units at $85 = $3,400Total Goods Available for Sale = $4,820Cost of Goods Sold: 25 units at $71 (FIFO) = $1,775Ending Merchandise Inventory = $4,820 - $1,775 = $2,975Since the replacement cost of $87 is higher than the ending inventory cost of $2,975, the lower-of-cost-or-market rule does not apply in this case.

Boulevard Home Furnishings Had the Following Balances and Transactions During