ExpertHard1 markMultiple Choice
CPA · Question 06 · Area II: Balance Sheet Accounts
Fenwick Co. uses FIFO inventory costing and reports the following data for three inventory items at year-end:<br/><br/>Item Alpha: Cost $3,000, NRV $2,500, Replacement Cost $2,200<br/>Item Beta: Cost $4,000, NRV $3,200, Replacement Cost $3,800<br/>Item Gamma: Cost $2,500, NRV $2,500, Replacement Cost $2,100<br/><br/>Under ASC 330 (lower of cost and net realizable value), what is the total inventory value Fenwick Co. should report on the balance sheet?
Fenwick Co. uses FIFO inventory costing and reports the following data for three inventory items at year-end:<br/><br/>Item Alpha: Cost $3,000, NRV $2,500, Replacement Cost $2,200<br/>Item Beta: Cost $4,000, NRV $3,200, Replacement Cost $3,800<br/>Item Gamma: Cost $2,500, NRV $2,500, Replacement Cost $2,100<br/><br/>Under ASC 330 (lower of cost and net realizable value), what is the total inventory value Fenwick Co. should report on the balance sheet?
Answer options:
A.
$7,700
B.
$8,200
C.
$8,500
D.
$9,500
How to approach this question
For each inventory item, compare cost to net realizable value and use the lower amount. Sum all the lower amounts for total inventory value. Replacement cost is not used for FIFO companies under current US GAAP.
Full Answer
B.$8,200✓ Correct
$8,200
ASC 330-10-35-1B requires inventory to be measured at the lower of cost and net realizable value. This applies to companies using FIFO, weighted average, or specific identification. The 'lower of cost or market' rule (which uses replacement cost) applies only to companies using LIFO or retail inventory methods.
Common mistakes
Using replacement cost in the calculation, applying 'lower of cost or market' rules to FIFO companies, or not applying the constraint item by item
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