Question

50. Climate Change Inc. sells three types of stoves. The following information relates to their cost and net realizable value at the company's year end. Apply the rule on an item-by-item basis and prepare the adjusting journal entry at the company's year end. Cost NRV Wood stove $125,000 $140,000 Gas stove $42,000 $39,500 Pellet stove $56,000 $50,500 Total Inventory $223,000 $230,000 Debit Credit (a) Cost of Goods Sold Merchandise Inventory $8000 $8000 (b) $7000 Cost of Goods Sold Merchandise Inventory $7000 (c) $7000 Merchandise Inventory Cost of Goods Sold $7000 (d) Merchandise Inventory Cost of Goods Sold $15000 $15000

Answer 1

Calculation of Amount to be adjusted to Cost of Goods Sold Under Cost or NRV Method: Item Wood Stove Gas Stove Pellet Stove Total Cost $125,000.00 $42,000.00 $56,000.00 $223,000.00 NRV $140,000.00 $39,500.00 $50,500.00 $230,000.00 Amount Adjusted to COGS $0.00 $2,500.00 $5,500.00 $8,000.00

Journal Entries Date Account Title and Explaination Post. Ref. Debit (S) Credit (S) $ 8,000.00 Cost of Goods Sold Merchandise Inventory |(To record adjusting entry for Lower of Cost or NRV) 8,000.00 Option a is Correct