Question

Abel Company must write down its inventory by 30,000 to the net realizable value of450,000 at December 31, 2021. What is the effect of this write-down on the year 2021 financial statements?

Answer 1

The write-down of inventory by Abel Company will result in a $30,000 decrease in the value of inventory assets on the balance sheet and a $30,000 expense on the income statement for the year 2021.

Step-by-step explanation:

The write-down of inventory by Abel Company will affect its 2021 financial statements by reducing the asset value on the balance sheet and increasing the expense on the income statement, which relates to the loss on inventory valuation. The specific entry would be a debit to a loss account (perhaps called 'Loss from inventory write-down') and a credit to the inventory account, thus reducing the total assets and net income by $30,000. This action decreases the company's net income for 2021, reflecting a lower economic benefit expected from the inventory. The net realizable value after the write-down is now stated at $450,000.

Balance Sheet Impact:

• Inventory Assets decrease by $30,000.
• Total assets decrease by $30,000.

Income Statement Impact:

Report a loss of $30,000 due to inventory write-down.

• Net income decreases by $30,000.

Answer 2

The write-down of inventory by Abel Company will result in a $30,000 decrease in the value of inventory assets on the balance sheet and a $30,000 expense on the income statement for the year 2021.

Step-by-step explanation:

The write-down of inventory by Abel Company will affect its 2021 financial statements by reducing the asset value on the balance sheet and increasing the expense on the income statement, which relates to the loss on inventory valuation. The specific entry would be a debit to a loss account (perhaps called 'Loss from inventory write-down') and a credit to the inventory account, thus reducing the total assets and net income by $30,000. This action decreases the company's net income for 2021, reflecting a lower economic benefit expected from the inventory. The net realizable value after the write-down is now stated at $450,000.

Balance Sheet Impact:

• Inventory Assets decrease by $30,000.
• Total assets decrease by $30,000.

Income Statement Impact:

Report a loss of $30,000 due to inventory write-down.

• Net income decreases by $30,000.