Question

Trade Mart has recently had lackluster sales. The rate of inventory turnover has​ dropped, and the merchandise is gathering dust. At the same​ time, competition has forced ​'s suppliers to lower the prices that will pay when it replaces its inventory. It is now December​ 31, ​, and the net realizable value of ​'s ending inventory is below what the company actually paid for the​ goods, which was . Before any adjustments at the end of the​ period, the Cost of Goods Sold account has a balance of . Read the requirementsLOADING.... Requirement a. What accounting action should take in this​ situation? should apply the ▼ average-cost method first in, first out method last in, first out method lower-of-cost-or-market rule to account for inventories. The net realizable value of ending inventory is ▼ equal to less than more than ​'s actual​ cost, so must write the inventory ▼ down up to net realizable value.

Answer 1

the numbers are missing, so i looked for a similar question to fill in the blanks:

Trade Mart has recently had lackluster sales. The rate of inventory turnover has? dropped, and the merchandise is gathering dust. At the same time, competition has forced Trade Mart's suppliers to lower the prices that Trade Mart will pay when it replaces its inventory. It is now December 31, 2016, and the current replacement cost Trade Mart's ending inventory is $75,000 below what Trade Mart actually paid for the goods, which was $200,000.

Before any adjustments at the end of the? period, the Cost of Goods Sold account has a balance of $$820,000.

a. What accounting action should take in this​ situation?

• lower-of-cost-or-market rule to account for inventories.

the adjustment entry should be:

Dr Cost of goods sold 75,000

Cr Inventory 75,000

b. The net realizable value of ending inventory is?

• equal to actual cost, so must write down inventory to match net realizable value

Ending inventory = $200,000 - $75,000 = $125,000