A company's current inventory consists of 5,000 units purchased at $6 per unit. Replacement cost has now fallen to $5 per unit. What is the entry the company must record to adjust inventory to market?
A) Debit Merchandise Inventory $25,000; credit Cost of Goods Sold $25,000.
B) Debit Loss on Inventory $5,000; credit Cost of Goods Sold $5,000.
C) Debit Cost of Goods Sold $30,000; credit Merchandise Inventory $30,000.
D) Debit Cost of Goods Sold $5,000; credit Merchandise Inventory $5,000.
E) Debit Merchandise Inventory $30,000; credit Cost of Goods Sold $25,000.

Question

Quizplus · Accepted Answer

The entry to adjust inventory to market is to record a loss for the difference between the original cost ($6) and the replacement cost ($5) multiplied by the number of units (5,000). This gives a loss of $5,000. Therefore, the entry is to debit Cost of Goods Sold $5,000, and credit Merchandise Inventory $5,000.

A Company's Current Inventory Consists of 5,000 Units Purchased at $6