Question

A company's current inventory consists of 5,000 units purchased at $6 per unit. Replacement cost has now fallen to $5 per unit. What is the entry the company must record to adjust inventory to market?

Answer 1

Inventory write off = $5,000 Debit

Inventory = $5,000 Credit

Step-by-step explanation:

given data

current inventory = 5,000 units

purchased = $6 per unit

Replacement cost = $5 per unit

solution

As here we know replacement cost fallen to $5 per unit which is lower than the cost of $6

so that amount realized from the sale of a unit is $5 so

so total adjustment required is

total adjustment required = ( $6 - $5 ) × 5000

total adjustment required = $5,000

so that

Entry required to write down inventory to its realizable value as

Inventory write off = $5,000 Debit

Inventory = $5,000 Credit