Question

A company reports merchandise inventory on December 31 at $250,000 but LCM applied to items is $200,000. Record the journal entry to report merchandise inventory at the correct amount:

Answer 1

See journal below

Step-by-step explanation:

The journal entries below will be recorded in the books of account in order to report the merchandise inventory at the correct amount.

The cost of goods sold account Dr $50,000

($250,000 - $200,000)

To merchandise inventory account Cr $50,000

(Being record of inventory on LCM)

The cost of goods sold was debited with $50,000 while same amount was credited to merchandise inventory account.

Answer 2

The adjusting journal will be :

Loss on write down of Inventory $50,000 (debit)

Inventory $50,000 (credit)

Step-by-step explanation:

The inventory must be presented at the Lower of Cost and Market Value.

The adjusting journal will be :

Loss on write down of Inventory $50,000 (debit)

Inventory $50,000 (credit)

The Loss on write down of Inventory is an expense in the trading account.