Bronx Company's ending inventory (at cost) was less than the market value of the ending inventory. What adjusting entry is required to account for this difference?

Question

Quizplus · Accepted Answer

If the ending inventory's cost is greater than its market value, it means that too much was spent on acquiring the inventory. To adjust for this, the company must debit the Cost of Goods Sold account to recognize the loss (because the goods can no longer be sold for their original cost) and credit the Inventory account to reduce its value on the balance sheet. Therefore, the adjusting entry required is debit Cost of Goods Sold and credit Inventory. Option A is incorrect because it implies that the company sold the inventory at cost (which does not impact the value of the ending inventory). Option B is incorrect because it implies that the company oversold its inventory (which is not the case). Option D is incorrect because ignoring the discrepancy would result in a misstatement of the company's financial statements.

Bronx Company's Ending Inventory (At Cost) Was Less Than the Market