ExpertMedium1 markMultiple Choice
CPA · Question 20 · Area II: Balance Sheet Accounts
A company uses the FIFO inventory method. At year-end, Product A has a cost of $50, a selling price of $60, costs to sell of $5, and a replacement cost of $48. What is the per-unit carrying amount of Product A in the balance sheet?
A company uses the FIFO inventory method. At year-end, Product A has a cost of $50, a selling price of $60, costs to sell of $5, and a replacement cost of $48. What is the per-unit carrying amount of Product A in the balance sheet?
Answer options:
A.
$50
B.
$55
C.
$48
D.
$45
How to approach this question
Identify Inventory Method (FIFO). Rule: Lower of Cost or Net Realizable Value (NRV). NRV = Selling Price - Costs to Sell. Compare Cost vs NRV.
Full Answer
A.$50✓ Correct
Under FIFO, inventory is measured at the Lower of Cost or Net Realizable Value (NRV).<br/>Cost = $50.<br/>NRV = Selling Price ($60) - Costs to Sell ($5) = $55.<br/>Lower of $50 and $55 is $50.
Common mistakes
Using Replacement Cost (Market) which applies to LIFO; confusing NRV with Market.
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