At the end of the year inventory has a cost of 200000 net re

At the end of the year, inventory has a cost of $200,000, net realizable value of $195,000, replacement cost of $160,000, and normal profit margin of $25,000. Assuming normal business circumstances, prepare the year-end adjusting entry, if any, for inventory using the lower of cost or market approach. (If no entry is required for a transaction/event, select \"No journal entry required\" in the first account field.)

Solution

Net realizable value-normal profit margin = 195000-25000 = $170000 Market = Higher of replacement cost or Net realizable value-normal profit margin So Market is higher of $160000 or $170000 which is $170000 Inventory valuation = Lower of cost or market or lower of $200000 or $170000 which is $170000 Journal entry: Cost of goods sold 30000 =200000-170000         Inventory 30000