Question 1

Fenwick Co. uses FIFO inventory costing and reports the following data for three inventory items at year-end:

Item Alpha: Cost $3,000, NRV $2,500, Replacement Cost $2,200
Item Beta: Cost $4,000, NRV $3,200, Replacement Cost $3,800
Item Gamma: Cost $2,500, NRV $2,500, Replacement Cost $2,100

Under ASC 330 (lower of cost and net realizable value), what is the total inventory value Fenwick Co. should report on the balance sheet?

Accepted Answer

For each inventory item, compare cost to net realizable value and use the lower amount. Sum all the lower amounts for total inventory value. Replacement cost is not used for FIFO companies under current US GAAP.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Using replacement cost in the calculation, applying 'lower of cost or market' rules to FIFO companies, or not applying the constraint item by item

How to approach this question

Full Answer

Common mistakes

Practice the full CPA FAR Practice Exam 2

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