Question

At the end of a reporting period, a company determines that its ending inventory has a net realizable value below cost. what would be the effect(s) of the adjusting entry to record inventory at net realizable value?

O decrease total assets.
O increase total expenses.
O decrease retained earnings.
O all of the other answers are correct.

Answer 1

The adjusting entry to record inventory at net realizable value will have a negative impact on total assets, total expenses, and retained earnings.

Step-by-step explanation:

When a company determines that its ending inventory has a net realizable value below cost, the effect of the adjusting entry to record inventory at net realizable value will be to decrease total assets, increase total expenses, and decrease retained earnings.

The decrease in total assets occurs because the value of the inventory is reduced. The increase in total expenses is due to recognizing the loss on the inventory. And the decrease in retained earnings reflects the impact of the loss on the overall profitability of the company.

In summary, the adjusting entry to record inventory at net realizable value has a negative impact on the financial position and performance of the company.