Jason Retail had the following balances and transactions during 2017. $$\begin{array} { | l | l | }
\hline \text { Beginning Inventory } & 10 \text { units at } \$ 74 \
\hline \text { June 10 } & \text { Purchased } 20 \text { units at } \$ 81 \
\hline \text { December 30 } & \text { Sold 20 units } \
\hline \text { December 31 } & \text { Replacement cost } \$ 83 \
\hline
\end{array}$$ 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 31,2017 using the lower-of-cost-or-market rule.

Question

Jason Retail had the following balances and transactions during 2017. $$\begin{array} { | l | l | } 
\hline \text { Beginning Inventory } & 10 \text { units at } \$ 74 \
\hline \text { June 10 } & \text { Purchased } 20 \text { units at } \$ 81 \
\hline \text { December 30 } & \text { Sold 20 units } \
\hline \text { December 31 } & \text { Replacement cost } \$ 83 \
\hline
\end{array}$$ 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 31,2017 using the lower-of-cost-or-market rule.

Quizplus · Accepted Answer

Under FIFO, the ending inventory consists of the most recent purchases. The ending inventory is 10 units from the beginning inventory at $74 each and 10 units from the June purchase at $81 each. The lower of cost or market rule applies, but since the replacement cost ($83) is higher than the cost, the cost is used. Thus, ending inventory = (10 units x $74) + (10 units x $81) = $810.

Jason Retail Had the Following Balances and Transactions During 2017