Centennial Inc. uses a perpetual inventory system and has the following data available for inventory, purchases, and
Question:
Centennial Inc. uses a perpetual inventory system and has the following data available for inventory, purchases, and sales for a recent year:
Activity | Units | Purchase Price (per unit) | Sales Price (per unit) |
Beginning inventory | 150 | $5.50 | |
Purchase 1, Jan. 15 | 675 | 6.00 | |
Sale 1 | (395) | $7.80 | |
Sale 2 | (325) | 8.00 | |
Purchase 2, Mar. 20 | 690 | 6.10 | |
Sale 3 | (370) | 8.00 | |
Sale 4 | (200) | 8.50 | |
Purchase 3, Sept. 22 | 250 | 6.30 | |
Sale 5 | (285) | 8.90 |
Question
1: Now assume that an inventory count took place at the end of the year and indicated that 190 units are left on hand. Compute the cost of ending inventory and the cost of goods sold using the FIFO inventory costing method.
a) If the company uses FIFO and the Net Realizable Value of ending inventory is $6.00 per unit, is a write-down of inventory necessary? Why or why not?
b) If a write-down is necessary, calculate how much this write-down would be for and then record the necessary journal entry.
c) What is the conceptual justification for valuing inventory at the lower of cost and net realizable value?
Expert Answer:
1 Calculation of Cost of Goods Sold COGS using FIFO To calculate the COGS we need to determine the cost of units sold during the year Beginning invent... View the full answer
