Questions: QUIZ Chapter 6 Units Unit Cost Inventory, January 1 5,000 9.00 Purchase, June 18 4,500 8.00 Purchase, November 8 3,000 7.00 A physical inventory on December 31 shows 2,000 units on hand. Holliday sells the units for 12 each. The company has an effective tax rate of 20%. Holliday uses the periodic inventory method. Under the FIFO method, the December 31 inventory is valued at: A) 14,000. B) 14,500. C) 15,000. D) 18,000.

To determine the value of the December 31 inventory under the FIFO (First-In, First-Out) method, we need to follow these steps:

1. Understand FIFO Method: Under FIFO, the oldest inventory costs are used up first when calculating the cost of goods sold (COGS). Therefore, the ending inventory will consist of the most recently purchased items.

2. Calculate Total Units Available:

   • Beginning Inventory: 5,000 units
   • Purchase on June 18: 4,500 units
   • Purchase on November 8: 3,000 units
   • Total Units Available = 5,000 + 4,500 + 3,000 = 12,500 units

3. Determine Units Sold:

   • Total Units Available: 12,500 units
   • Units on Hand (Ending Inventory): 2,000 units
   • Units Sold = 12,500 - 2,000 = 10,500 units

4. Determine Ending Inventory Cost under FIFO:

   • Since FIFO uses the oldest costs first, the ending inventory will consist of the most recent purchases.
   • The 2,000 units in ending inventory will be taken from the most recent purchase:
     • November 8 Purchase: 3,000 units at $7.00 each
     • Since we only need 2,000 units for the ending inventory, all 2,000 units will be valued at $7.00 each.

5. Calculate the Value of Ending Inventory:

   • Ending Inventory = 2,000 units × $7.00/unit = $14,000

Therefore, the value of the December 31 inventory under the FIFO method is:

The answer is A) $14,000.

Explanation of Options:

• A) $14,000: Correct, as calculated above.
• B) $14,500: Incorrect, as it does not match the calculated value.
• C) $15,000: Incorrect, as it does not match the calculated value.
• D) $18,000: Incorrect, as it does not match the calculated value.

In summary, the correct value of the ending inventory under the FIFO method is $14,000.