Question

Learning Objectives 1,4 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

Since current replacement cost is less than cost of inventory, hence inventory should be value at the current replacement cost.

1.

Journal

December 31	Cost of goods sold	24,000
	Inventory		24,000

2.

Inventory to be reported in the balance sheet at = 97,000 - 24,000

= $73,000

3.

Cost of goods sold to be reported on the income statement = 380,000 + 24,000

= $404,000

4.

Conservatism Principle is most relevant to this situation.

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