(L.OBJ. 5) Applying the lower-of-cost-or-market rule to inventories [5 min] Natural Foo...

(L.OBJ. 5) Applying the lower-of-cost-or-market rule to inventories [5 min]

Natural Foods reports inventory at the lower of average cost or marker. Prior to releasing its December 2012 financial statements, Natural’s preliminary income statement, before the yearend adjustments, appears as follows:

Natural has determined that the replacement Cost of ending inventory is $20,000. Cost is $21,000.

Requirements

1. Journalize the adjusting entry for inventory, if any is required.

2. Prepare a revised income statement to show how Natural Foods should report sales, cost of goods sold, and gross profit.