Chapter 6, Problem P6.35BPGB

Accounting principles for inventory and applying the lower-of-cost-or-market rule

Learning Objective 1, 4

Some of L and K Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is 332,000 below the business’s cost of the goods, which was $98,000. Before any adjustments at the end of the period, the company’s Cost of Goods Sold account has a balance of $410,000.

Requirements

1. Journalize any required entries.
2. At what amount should the company report merchandise inventory on the balance sheet?
3. At what amount should the company report cost of goods sold on the income statement?
4. Which accounting principle or concept is most relevant to this situation?