Dakota Industries has two items in inventory as of December 31, 2015. Each item was purchased for $52. Company management chose to write down Item #1 to $39, which at year-end was assessed to be its market value. Management did not write down Item #2 because its market value was estimated to be greater than $52. During 2016, each item was sold for $63 cash.
If Dakota uses the perpetual inventory method, which of the following would be included in the entry or entries to record the sale of Item #1?

Question

Quizplus · Accepted Answer

Since Item #1 was written down to $39 before it was sold, the cost of goods sold for that item should be recorded at the reduced amount. Therefore, the entry to record the sale of Item #1 would be a debit to Cost of Goods Sold for $39 (not the original cost of $52). There would also be a credit to Inventory for $52 to remove the cost of the item from the inventory account. The sale would also be recorded with a debit to Cash (or Accounts Receivable) for $63 and a credit to Sales for $63.

Dakota Industries Has Two Items in Inventory as of December