P6-30A Accounting principles for inventory and applying the lower-of-cost- or-ma

Question

P6-30A Accounting principles for inventory and applying the lower-of-cost- or-market rule Some of M and 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. 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?

Explanation / Answer

1) Adjusting Entry Accounting titles & Explanations Debit Credit Cost of goods sold 24,000 Merchandise inventory 24,000 2) Merchandise inventory should be reported at 73000 (97000-24000) 3) cost of goods sold should be reported on the income statement at 404000 (380000+24000) 4) Conservatism principle which is the foundation for the lower of cost or market value ,which states that you should record inventory at lower of either its acquistion cost or its current market value.

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