Mariah Company has inventory at the end of the year with a historical cost of $75,000.Mariah Company uses the perpetual inventory system.Under the LCM rules,the current replacement cost is $72,600.Under U.S.GAAP,the journal entry to record the write-down to LCM will:

Question

Quizplus · Accepted Answer

Under the LCM (lower of cost or market) rules, the inventory should be written down to the lower of its historical cost or its current replacement cost. In this case, since the current replacement cost is less than the historical cost, the inventory needs to be written down. The journal entry to record the write-down to LCM will involve debiting Cost of Goods Sold for the amount of the write-down ($75,000 - $72,600 = $2,400) and crediting Inventory for the same amount. Therefore, the correct answer is A.

Mariah Company Has Inventory at the End of the Year