At the end of the Year 2 accounting period,DeYoung Company determined that the market value of its inventory was $79,800.The historical cost of this inventory was $81,400.DeFazio uses the perpetual inventory method.Assuming the amount is material,how will the necessary write-down to reduce the inventory to the lower-of-cost-or-market affect the elements of the company's financial statements?

Question

Quizplus · Accepted Answer

The write-down will decrease assets (inventory) and stockholders' equity (retained earnings). It increases expenses (cost of goods sold), which decreases both gross margin and net income.

At the End of the Year 2 Accounting Period,DeYoung Company