(Learning Objective 3: Explain GAAP and apply the lower-of-cost-or-market ruleto inventories) Anderson Trade Mart has recently had lackluster sales. The rate of inventoryturnover has dropped, and the merchandise is gathering dust. At the same time, competitionhas forced Anderson’s suppliers to lower the prices that Anderson will pay when it replacesits inventory. It is now December 31, 2018, and the net realizable value of Anderson’s endinginventory is $55,000 below what the company actually paid for the goods, which was $265,000.Before any adjustments at the end of the period, the Cost of Goods Sold account has a balanceof $820,000.a. What accounting action should Anderson take in this situation?b. Give any journal entry required.c. At what amount should the company report Inventory on the balance sheet?d. At what amount should the company report Cost of Goods Sold on the incomestatement?e. Discuss the accounting principle or concept that is most relevant to this situation
(Learning Objective 3: Explain GAAP and apply the lower-of-cost-or-market rule
to inventories) Anderson 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 Anderson’s suppliers to lower the prices that Anderson will pay when it replaces
its inventory. It is now December 31, 2018, and the net realizable value of Anderson’s ending
inventory is $55,000 below what the company actually paid for the goods, which was $265,000.
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 Anderson take in this situation?
b. Give any
c. At what amount should the company report Inventory on the
d. At what amount should the company report Cost of Goods Sold on the income
statement?
e. Discuss the accounting principle or concept that is most relevant to this situation
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
