Question

A company accounts for its inventory using the first-in, first-out (FIFO) method. The following information pertains to the inventory at the end of the fiscal year:
Historical cost $150,000
Current replacement cost 120,000
Net realizable value (NRV) 125,000
Normal profit margin 15,000
Fair value 140,000

What amount should the company report as inventory on its year-end balance sheet?
A. $150,000
B. $140,000
C. $120,000
D. $125,000

Answer 1

Answer:

D. $125,000

Explanation:

As we know that

The inventory should be recorded at lower of cost or net realizable value in the financial statements

So as per the given situation, the historical cost is $150,000 and the net realizable value is $125,000 so the lower value i.e $125,000 should be reported as an inventory on its year end balance sheet