Chapter 9, Problem 9.3BYP

Integrating Case 9–3

FIFO and lower of cost or net realizable value

• LO9–1

York Co. sells one product, which it purchases from various suppliers. York’s trial balance at December 31, 2018, included the following accounts:

Sales (33,000 units @ $16)	$528,000
Sales discounts	7,500
Purchases	368,900
Purchase discounts	18,000
Freight-in	5,000
Freight-out	11,000

York Co.’s inventory purchases during 2018 were as follows:

Additional Information:

a. York’s accounting policy is to report inventory in its financial statements at the lower of cost or net realizable value, applied to total inventory. Cost is determined under the first-in, first-out (FIFO) method.

b. York has determined that, at December 31, 2018, the net realizable value was $8.00 per unit.

Required:

1. Prepare York’s schedule of cost of goods sold, with a supporting schedule of ending inventory. York includes inventory write-down losses in cost of goods sold.

2. Explain the rule of lower of cost or net realizable value and its application in this situation.