Question

Sandhill is a distributor of fruit who uses FIFO and has the following information at December 31,2025 :

Inventory at cost $12,00,000
Inventory in transit shipping FOB destination from a vendor 7,20,000
Non-cancelable purchase orders expected to be received in 2026 2,520,000
Cancelable purchase orders expected to be received in 2027 3,840,000
The expected selling price of the fruit is 99% of its cost. The cost of delivery to customers is 2% of the selling price and Sandhill pays these costs, none of which is reimbursed by the customers.
Determine ending inventory at December 31,2025 , based on lower of cost of net realizable value.
Ending inventory at lower of cost of net realizable value $

Answer 1

To find the ending inventory at lower of cost or net realizable value, you must compare the cost and net realizable value for each inventory item and report at the lesser amount. Purchase orders for 2027 are not included in the 2025 ending inventory calculation. More detailed inventory information is needed to complete the calculation.

Step-by-step explanation:

The student asks how to determine the ending inventory at December 31, 2025, for a fruit distributor named Sandhill using the FIFO method and considering the lower of cost or net realizable value. To do this, we need detailed information about the inventory on hand at year-end, including the cost of items and their potential selling price minus any selling costs (net realizable value). However, the provided information about cancelable purchase orders expected to be received in 2027 cannot be used in the calculation of ending inventory for 2025 as these items have not yet been received and are not part of the current inventory.

To calculate the ending inventory, you would list the items in inventory in the order they were purchased, assign a cost to each unit, and compare that cost to the net realizable value. The ending inventory is reported at the lower of the cost or the net realizable value for each item. If the net realizable value is lower than the cost, the inventory should be written down to reflect this potential loss. Without specific inventory data, this task cannot be completed accurately. More information is needed to provide a precise ending inventory value.