Question

Moss Co. has determined its year-end inventory on a FIFO basis to be $400,000. Information pertaining to that inventory is as follows:

Estimated selling price
$408,000
Estimated costs to sell
20,000
What should be the book value of Moss's inventory?
a) $408,000
b) $380,000
c) $388,000
d) $400,000

Answer 1

The book value of Moss Co.'s inventory should be recorded at the lower of cost or net realizable value. With a FIFO-based inventory value of $400,000 and a net realizable value of $388,000, the correct book value is $400,000, the cost of the inventory.

Step-by-step explanation:

The book value of Moss Co.'s inventory should reflect the cost of acquiring the goods on hand, calculated using the FIFO (first-in, first-out) method. In this scenario, the FIFO-based year-end inventory value is given as $400,000. While the estimated selling price of the inventory is $408,000 and the estimated costs to sell are $20,000, for reporting inventory on the balance sheet, it is recorded at the lower of cost or market value.

Because the cost, in this case, FIFO cost, is $400,000 and the net realizable value ($408,000 selling price - $20,000 costs to sell) is $388,000, the book value should be the cost since it is lower than the net realizable value. Therefore, the correct book value for the inventory is $400,000.