When a company uses the perpetual inventory method, which of the following would be the entry to adjust inventory to lower-of-cost-or-market?

Question

Quizplus · Accepted Answer

When a company uses the perpetual inventory method, inventory is constantly updated whenever a purchase or sale is made, and the cost of goods sold is calculated and recorded at the time of sale. To adjust inventory to lower-of-cost-or-market, the cost of goods in inventory must be compared to the current market value of those goods. If market value has dropped below cost, the inventory must be written down to the lower market value. This adjustment should be recorded as a debit to Cost of Goods Sold (to recognize the loss) and a credit to Merchandise Inventory (to reduce the inventory value on the balance sheet). Therefore, the correct entry is: Debit Cost of Goods Sold and credit Merchandise Inventory.

When a Company Uses the Perpetual Inventory Method, Which of the Following