Question

Included in the December​ 31, 2016​, inventory of the Top DogTop Dog Supply Company are 2,500 deluxe ring binders in the amount of $6,752.

An examination of the most recent acquisitions of binders showed the following​ costs: January​ 26, 2017​, 1,900 at $2.86 each; December​ 6, 2016​, 1,700 at $2.76 each; November​ 26, 2016​, 2,000 at $2.45 each.

What is the misstatement in valuation of the December​ 31,2016​, inventory for deluxe ring​ binders, assuming FIFO inventory​ valuation?

What would your answer be if the January​ 26, 2017​, acquisition was for 1,900 binders at $2.48 ​each?

What is the misstatement in valuation of the December​ 31, 2016​, inventory for deluxe ring​ binders, assuming FIFO inventory​ valuation?

Assuming FIFO inventory valuation, the December 31, 2016 inventory balance for deluxe ring binders should be_______________								.
As such, the ending inventory balance of	$6,752	at December 31, 2016 is overstated or understated by ___________________

Answer 1

Most recent purchases-

Date	Units Purchased	Cost per unit
January26,2017	1900	$2.86
December 6,2016	1700	$2.76
Novemebr 26,2016	2000	$2.45

If FIFO inventory method is applied then the closiong stock as on December 31, 2016 will include the Most recent stock purchased before December 31,2016.

Hence Under the FIFO method the closing value of inventory of 2500 deluxe ring binders

1700 units purchased on Decemebr 6,2016	=1700*$2.76 = $4692
800 units purchased in November 26,2016	=800*$2.45 =$1960
Total2500 units cost	$6652

Note-stocks purchased on January 26,2017, will not be considered while calculating the closing stock of December 31,2016, because it is purchased after the reporting period.

(1)Question-What is the misstatement in valuation of the December​ 31,2016​, inventory for deluxe ring​ binders, assuming FIFO inventory​valuation?

Answer-

Correct valuation as per FIFO	$6652
Cost shown	$6752
Misstatement	$100 over valued

---------------------------

(2)Question-What would your answer be if the January​ 26, 2017​, acquisition was for 1,900 binders at $2.48 ​each?

-Answer will be same. As purchase made in January 26,2017, will not be considered while calculating the closing stock of Decemebr 31,2016.

-----------------------

Assuming FIFO inventory valuation, the December 31, 2016 inventory balance for deluxe ring binders should be-- $6652		.
As such, the ending inventory balance of	$6,752	at December 31, 2016 is overstated by $ 100.