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Horngren'S Financial And Managerial Accounting
Found in: Page 368

Short Answer

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 adjustments at the end of the period, the company’s Cost of Goods Sold account has a balance of $380,000.

Requirements

1. Journalize any required entries.

The cost of goods sold would be debited and inventory would be credited by the reduced amount.

See the step by step solution

Step by Step Solution

Step-by-Step SolutionStep 1: Reduction in inventory value

Based on the lower cost or net realizable value, the inventory has been reduced by the following amount -

Step 2: Journal Entry

The reduced value of inventory would be treated as normal loss and would be adjusted in the cost of goods sold. The journal entry would be as follow :

Date

Description

Debit

Credit

Dec 31, 2018

Cost of goods sold

$73,000

Merchandise Inventory

$73,000

Being ending inventory adjusted for lower replacement cost

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