Everyday Wear Retail had the following balances and transactions during 2018: $$\begin{array} { | l | l | }
\hline \text { Beginning Inventory } & 15 \text { units at } \$ 71 \
\hline \text { Tune } 10 & \text { Purchased } 30 \text { units at \$85 } \
\hline \text { December 30 } & \text { Sold 20 units } \
\hline \text { December 31 } & \text { Replacement cost \$66 } \
\hline
\end{array}$$ 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: $$\begin{array} { | l | l | } 
\hline \text { Beginning Inventory } & 15 \text { units at } \$ 71 \
\hline \text { Tune } 10 & \text { Purchased } 30 \text { units at \$85 } \
\hline \text { December 30 } & \text { Sold 20 units } \
\hline \text { December 31 } & \text { Replacement cost \$66 } \
\hline
\end{array}$$ 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

Under the FIFO method, the first items purchased are the first ones sold. By the end of the year, 20 units were sold, so the 15 units bought at $71 and 5 units from the 30 units bought at $85 were sold. This leaves 25 units at $85 each. The replacement cost is $66, which is lower than the cost, so we use the lower-of-cost-or-market rule. Therefore, the ending inventory is 25 units at $66 each, totaling $1,650.

Everyday Wear Retail Had the Following Balances and Transactions During