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Horngren'S Financial And Managerial Accounting
Found in: Page 371

Short Answer

Some of L and K Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is$32,000 below the business’s cost of the goods, which was $98,000. Before any adjustmentsat the end of the period, the company’s Cost of Goods Sold account has a balanceof $410,000.


1. Journalize any required entries.

The cost of goods sold would be debited, and inventory would be credited by the reduced amount,which is $66,000.

See the step by step solution

Step by Step Solution

Step1: Reduction in inventory value

Based on the lower of 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 follows –





Dec 31, 2018

Cost of goods sold


Merchandise Inventory


Being ending inventory adjusted for lower replacement cost

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