Red Company reported the following information for its two items of inventory on December 31, Year 1. Hem Replacement Cost Net Realizable Value - Normal Profit Margin $750 1,050 A B Cost $800 1,200 Net Realizable Value $1,850 O$1,851 O$1,900 O $2.050 $950 1,100 $850 1,051 Red Company uses FIFO and applies inventory valuation rules to the individual items. Determine the amount that Red Company should report as inventory on the balance sheet at December 31, Year 1. Assume one unit of item A and one unit of item B

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.