Question

-4 P6-30A Accounting principles for inventory and applying the lower-of-cost- or-market rule Some of Mand C Electronics's merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is $24,000 below the business's cost of the goods, which was $97,000. Before any adjust- ments at the end of the period, the company's Cost of Goods Sold account has a bal- ance of $380,000. Requirements 1. Journalize any required entries. 2. At what amount should the company report merchandise inventory on the balance sheet? 3. At what amount should the company report cost of goods sold on the income statement? 4. Which accounting principle or concept is most relevant to this situation?

Answer 1

Reg To 0 Journal Date Accounts Debit credit Dec 31, cost of goods sold $ 24,000 2018 Inventory $24,000 Reg M and C should report inventory on the balance sheet at $73,000 Cire. $97,000 - $ 24,000) Reg M and C should report cost of goods sold on the income statement at $404,000 (i.co $380,000 + $24,000) Rea y Accounting conservatism is the reason to account for inventory at the lower-of-cost or market. . Conservatism directs accountants to decrease the accounting value of an asset if it appears unrealistically high-