Question

The Bridal Gift Shop Company has 12 units in ending merchandise inventory on December 31. The units were purchased in November forâ $150 each. The price lists from suppliers indicate the current replacement cost of the item to beâ $152 each. What would be the amount reported as Merchandise Inventory on the balanceâ sheet?

Answer 1

Answer:

$1,800

Explanation:

According to the accounting principle, the inventory should be valued at lower of cost or net realizable value. The calculation is shown below:

Based on acquisition cost

12 units × $150 = $1,800

Ending inventory = $1,800

Based on current replacement cost

12 units × $152 = $1,824

Ending inventory = $1,824

As we see that the lower cost would be $1,800. So, $1,800 would be reported to the ending inventory