Martha, Inc. had 21,000 units of ending inventory that were recorded at the cost of $8.00 per unit using the FIFO method. The current replacement cost is $4.25 per unit. Which of the following amounts would be reported as ending Merchandise Inventory on the balance sheet using the lower-of-cost-or-market rule?

Question

Quizplus · Accepted Answer

According to the lower-of-cost-or-market rule, inventory should be reported at the lower of its cost or its market value. Since the replacement cost of the ending inventory is less than its recorded cost, we need to adjust the inventory value to the market value of $4.25 per unit. Therefore, the ending inventory value would be 21,000 x $4.25 = $89,250. Hence, option D is the correct choice.