Question

The Bridal Gift Shop, Inc. has 14 units in ending merchandise inventory on December 31. The units were purchased in November for $165 each. The price lists from suppliers indicate the current replacement cost of the item to be $171 each. What would be the amount reported as Merchandise Inventory on the balance sheet?
A. $2,394
B. $336
C. $4,704
D. $2,310

Answer 1

Answer:

D. $2,310

Explanation:

Ending inventory or Merchandise Inventory is the value of goods available for sale at the end of the accounting period valued at the lowest of total purchase cost or total replacement cost.

In this problem, total purchase cost (P) is:

$P= \ 165*14 = \ 2,310$

Total replacement cost (R) is:

$R= \ 171*14 = \ 2,394$

Since purchase cost is lower than replacement cost, the amount reported as Merchandise Inventory on the balance sheet should be $2,310