Second Street, Inc. has 7 units in ending merchandise inventory on December 31. The units were purchased in November for $180 each. The price lists from suppliers indicate the current replacement cost of the item to be $178 each. Which of the following statements is true of the effects of the adjustments to ending merchandise inventory and the cost of goods sold?

Question

Quizplus · Accepted Answer

The adjustment to ending merchandise inventory would be a decrease of $14 per unit ($180 - $178). Thus, the total adjustment for the 7 units would be $98 ($14 x 7). Since this adjustment is a decrease in inventory value, it would increase the cost of goods sold by the same amount, resulting in a total increase of $98. Therefore, the correct answer is D.