Concept explainers
LO 3
(Learning Objective 3: Explain GAAP and apply the lower-of-cost-or-market rule to inventories) Freshwater 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 Freshwater’s suppliers to lower the prices that Freshwater will pay when it replaces its inventory. It is now December 31, 2018, and the net realizable value of Freshwater’s ending inventory is $60,000 below what the company actually paid for the goods, which was $210,000. 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 Freshwater take in this situation?
b. Give any
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 income statement?
e. Discuss the accounting principle or concept that is most relevant to this situation.
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Financial Accounting (12th Edition) (What's New in Accounting)
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