Problem:
A company carries 5 products in its inventory. It uses the FIFO method of valuing inventory under the perpetual method. Data at the end of the month is as follows:
Product FIFO Value Replacement Cost Estimated Selling Price
A $68,000 $64,000 $75,000
B 36,000 40,000 45,000
C 42,000 40,000 65,000
D 33,000 37,000 55,000
E 73,000 68,000 96,000
Total $252,000 $249,000 $336,000
Selling costs are 20% of FIFO Value and the normal profit margin is 25% of sales.
Instructions:
1) Determine the inventory value to be reported on the company's balance sheet for the end of the month.
2) Prepare any journal entry necessary at the end of the month to properly reflect the inventory value under each of the following assumptions:
a) The direct method
b) The indirect/allowance method