Financial & Managerial Accounting 3rd Edition by Charles Horngren,Harrison, Walter,Suzanne Oliver

Exercise 14

Applying the lower-of-cost-or-market rule to inventories
Naturally Good Foods reports inventory at the lower of average cost or market. Prior to releasing its March 2012 financial statements, Naturally's preliminary income statement, before the year-end adjustments, appears as follows:

Naturally has determined that the replacement cost of ending inventory is $17,000. Cost is $18,000.
Requirements
1. Journalize the adjusting entry for inventory, if any is required.
2. Prepare a revised income statement to show how Naturally Good Foods should report sales, cost of goods sold, and gross profit.