Where inventory is transferred in the current period and some or all of that inventory is still on hand at the end of the period, the general form of financial statement adjustment is:

Question

Quizplus · Accepted Answer

When inventory is transferred and some of it is still on hand at the end of the period, an adjustment is required to account for the profit that remains in the inventory. This adjustment is made by reducing the cost of goods sold by the amount of profit remaining in the ending inventory, and increasing the value of the inventory on the balance sheet to reflect the remaining profit. Choice A is incorrect because the adjustment is not based on the total inventory transferred, but on the portion of it that remains on hand. Choice C is incorrect because the adjustment is made regardless of whether all inventory is sold to external groups or not.

Where Inventory Is Transferred in the Current Period and Some