Chapter 6, Problem E6.22E

Applying the lower-of-cost-or-market rule to inventories

Learning Objective 4
2 GP $66,500

Nutriset Foods reports merchandise inventory at the lower-of-cost-or-market. Prior to releasing its financial statements for the year ended March 31, 2019, Nutriset’s Preliminary income
statement, before the year-end adjustments, appears as follows:

NUTRISET FOODS
Income Statement (partial) year Ended March 31, 2019
Net Sales Revenue	$118,000
Cost of Goods Sold	47,000
Gross Profit	$71,000

Nutriset has determined that the current replacement cost of ending merchandise inventory is $19,500. Cost is $24,000.

Requirements

1. Journalize the adjusting entry for merchandise inventory, if any is required.
2. Prepare a revised partial income statement to show how Nutriset Foods should report sales, cost of goods sold, and gross profit.