Question

Mariah Company has inventory at the end of the year with a historical cost of . Mariah Company uses the perpetual inventory system. Under the LCM​ rule, the current replacement cost is . The company uses LIFO. Under U.S.​ GAAP, the journal entry to record the writedown to LCM​ will:

Answer 1

The numbers are missing, but the journal entries should follow the following format. Under GAAP, when you are writing down inventory, you must increase cost of goods sold and decrease inventory account:

Dr Cost of goods sold XX

Cr Inventory XX

Any changes in inventory levels are written off against cost of goods sold, since it increases a company's expenses while it decreases its assets.