LIFO inventory costing is not allowed in the United Kingdom (UK).
Thus, all companies
based there use FIFO.
You are examining the financial statements from Leicester
Manufacturing, a UK firm.
Inventory replenishment costs have varied somewhat over
the past two years.
Which will be more accurate, the Inventory account on the balance
sheet, or the Cost of Goods Sold figure on the income statement?
With the First In, First Out (FIFO) inventory costing method, the most recently acquired
merchandise is in the Inventory account.
As such, the Inventory account on the balance
sheet will be more accurate.
Conversely, the Cost of Goods Sold account will show
items acquired some time ago, and thus may be out of date and inaccurate.
The Boswell Boat Supply Company has three inventory items on hand.
found that the items would need to be refurbished before they could be sold, and the
replacement cost of each of these items has changed.
Boswell Company may need to
adjust the inventory cost of the items.
Find the correct cost for each item, and provide
the journal entry needed (if any) to make the adjustment in their financial records.
Cost per unit
NRV = 105, NAC = 65, RC = 65, pick the middle, 65.
Compare to HC = 80, pick
the lower one, $65.
NRV = 170, NAC = 100, RC = 120, pick the middle, 120.
Compare to HC = 150,
pick the lower one, $120.