ABC uses a periodic inventory system, and the ending inventory for each year is

Question

ABC uses a periodic inventory system, and the ending inventory for each year is determined by taking a complete physical inventory at year-end. A physical count was taken on December 31, 2014, and the inventory on-hand at that time totaled $75,000, which reflects historical cost. Record the 2014 Cost of Goods Sold and the 12/31/14 Inventory adjustment. Additionally, ABC adheres to GAAP by recording ending inventory at the lower of cost and net realizable value at a total inventory level. A review of inventory data further indicated that the current retail sales value of the ending inventory is $110,000 and estimated costs of completion and shipping is 15% of retail. Be sure to make an additional adjustment, if necessary, to properly value ending inventory using the Loss and Allowance methodology. For Income Statement presentation purposes, be sure to use the Loss Method for accounting for adjustments of inventory to market value.   

How would I format this journel entry?

Purchases         350,000

Explanation / Answer

In the books of ABC

Journal Entry (Amount in $)

The total inventory balance at the end is $75,000 which is at historical cost, thus cost of goods sold should be excess of purchases over Closing Inventory( i.e. $350,000-$75,000 = $275,000)

The Net realizable Value for the Inventory is

As the NRV of inventory is more than its cost, the inventory remains to be valued at its cost and no adjustment for writing off value of inventory is required.

Date Particulars Debit Credit 12/31/14 Cost of goods sold Dr. 275,000 To Inventory 275,000 (To record cost of goods sold for the year ended Dec. 31,2014) ($350,000-$75,000)

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