Question 1

A company uses the LIFO inventory method. At year-end, the following data is available for Item X:
- Cost: $50
- Replacement Cost: $45
- Selling Price: $60
- Disposal Costs: $5
- Normal Profit Margin: $15

What is the carrying amount of Item X at year-end?

Accepted Answer

1. Identify method: LIFO -> Use Lower of Cost or Market (LCM).
2. Calculate Market: Middle of (Replacement Cost, NRV, NRV-Profit).
3. Compare Cost vs. Market. Take lower.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Using Lower of Cost or NRV (that's for FIFO/Weighted Avg). Picking Replacement Cost without checking floor/ceiling.

A company uses the LIFO inventory method. At year-end, the following data is available for Item X:<br/>- Cost: $50<br/>- Replacement Cost: $45<br/>- Selling Price: $60<br/>- Disposal Costs: $5<br/>- Normal Profit Margin: $15<br/><br/>What is the carrying amount of Item X at year-end?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA FAR Practice Exam 3

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