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Some of E and S Electronics' merchandise is gathering dust. It is now December 31, 2024, and the current replacement cost of the ending merchandise inventory is $25,000 below the business's cost of the goods, which was $104,000. Before any adjustments at the end of the period, the company's Cost of Goods Sold account has a balance of $405,000. Read the requirements. Requirement 1. Journalize any required entries. (Record debits first, then credits. Select the explanation on the last line of the journal entry table. For situations that do not require an entry, make sure to select "No Entry Required" in the first cell in the "Accounts" column and leave all other cells blank.) The required journal entry would be: Date Dec. 31 Accounts and Explanation Cost of Goods Sold Merchandise Inventory Debit 79,000 To write merchandise inventory down to market value. Requirement 2. At what amount should the company report merchandise inventory on the balance sheet? E and S should report cost of goods sold on the income statement at Requirement 4. Which accounting principle or concept is most relevant to this situation? is the reason to account for merchandise inventory at unrealistically high. Credit E and S should report merchandise inventory on the balance sheet at Requirement 3. At what amount should the company report cost of goods sold on the income statement? 79,000 directs accountants to decrease the accounting value of an asset if it appears

Some of E and S Electronics' merchandise is gathering dust. It is now December 31, 2024, and the current replacement cost of the ending merchandise inventory is $25,000 below the business's cost of the goods, which was $104,000. Before any adjustments at the end of the period, the company's Cost of Goods Sold account has a balance of $405,000. Read the requirements. Requirement 1. Journalize any required entries. (Record debits first, then credits. Select the explanation on the last line of the journal entry table. For situations that do not require an entry, make sure to select "No Entry Required" in the first cell in the "Accounts" column and leave all other cells blank.) The required journal entry would be: Date Dec. 31 Accounts and Explanation Cost of Goods Sold Merchandise Inventory Debit 79,000 To write merchandise inventory down to market value. Requirement 2. At what amount should the company report merchandise inventory on the balance sheet? E and S should report cost of goods sold on the income statement at Requirement 4. Which accounting principle or concept is most relevant to this situation? is the reason to account for merchandise inventory at unrealistically high. Credit E and S should report merchandise inventory on the balance sheet at Requirement 3. At what amount should the company report cost of goods sold on the income statement? 79,000 directs accountants to decrease the accounting value of an asset if it appears

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Some of E and S Electronics' merchandise is gathering dust. It is now December 31, 2024, and the current replacement cost of the ending merchandise inventory is $25,000 below the business's cost of the goods, which was $104,000. Before any adjustments at the end of the period, the company's Cost of Goods Sold account has a balance of $405,000. ### Requirements #### Requirement 1 **Journalize any required entries.** (Record debits first, then credits. Select the explanation on the last line of the journal entry table. For situations that do not require an entry, make sure to select "No Entry Required" in the first cell in the "Accounts" column and leave all other cells blank.) The required journal entry would be: | Date | Accounts and Explanation | Debit | Credit | |------------|-----------------------------------------|--------|--------| | Dec. 31 | Cost of Goods Sold | 79,000 | | | | Merchandise Inventory | | 79,000 | | | | | | | | To write merchandise inventory down to market value. | | | #### Requirement 2 **At what amount should the company report merchandise inventory on the balance sheet?** E and S should report merchandise inventory on the balance sheet at **$79,000**. #### Requirement 3 **At what amount should the company report cost of goods sold on the income statement?** E and S should report the cost of goods sold on the income statement at **$484,000**. #### Requirement 4 **Which accounting principle or concept is most relevant to this situation?** The **lower of cost or market (LCM)** is the reason to account for merchandise inventory at **net realizable value**. This directs accountants to decrease the accounting value of an asset if it appears unrealistically high.
Transcribed Image Text:Some of E and S Electronics' merchandise is gathering dust. It is now December 31, 2024, and the current replacement cost of the ending merchandise inventory is $25,000 below the business's cost of the goods, which was $104,000. Before any adjustments at the end of the period, the company's Cost of Goods Sold account has a balance of $405,000. ### Requirements #### Requirement 1 **Journalize any required entries.** (Record debits first, then credits. Select the explanation on the last line of the journal entry table. For situations that do not require an entry, make sure to select "No Entry Required" in the first cell in the "Accounts" column and leave all other cells blank.) The required journal entry would be: | Date | Accounts and Explanation | Debit | Credit | |------------|-----------------------------------------|--------|--------| | Dec. 31 | Cost of Goods Sold | 79,000 | | | | Merchandise Inventory | | 79,000 | | | | | | | | To write merchandise inventory down to market value. | | | #### Requirement 2 **At what amount should the company report merchandise inventory on the balance sheet?** E and S should report merchandise inventory on the balance sheet at **$79,000**. #### Requirement 3 **At what amount should the company report cost of goods sold on the income statement?** E and S should report the cost of goods sold on the income statement at **$484,000**. #### Requirement 4 **Which accounting principle or concept is most relevant to this situation?** The **lower of cost or market (LCM)** is the reason to account for merchandise inventory at **net realizable value**. This directs accountants to decrease the accounting value of an asset if it appears unrealistically high.
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