Moss Co. has determined its December 31, 20X4 inventory to be $400,000 on a FIFO basis. Information pertaining to that inventory follows:

 Moss Co. has determined its December 31, 20X4 inventory to be $400,000 on a FIFO basis. Information pertaining to that inventory follows:

Estimated selling price    $408,000
Estimated cost of disposal    20,000
Normal profit margin    60,000
Current replacement cost    360,000
Moss records losses that result from applying lower of cost or net realizable value. On December 31, 20X4, what should be the net carrying value of Moss' inventory?

$400,000
$388,000
$360,000
$328,000

Answer

$388,000

 You Answered Correctly!
Lower of cost or net realizable value applies to inventories that are carried at FIFO or Average cost. Net realizable value is selling price less cost of disposal. In this case it is $408,000 − $20,000 = $388,000.