Company A has inventory at the end of the year with a cost of $75,000. Under the LCM rules, the value of the inventory is $72,600.The journal entry to record the write-down to LCM will:

Question

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According to LCM rules, inventory should be valued at the lower of its cost or market value. Since the market value is less than the cost, a write-down is necessary to adjust the inventory value to the lower market value. This write-down reduces the value of ending inventory and increases the cost of goods sold. Therefore, the journal entry should increase cost of goods sold and decrease ending inventory, which is option B.

Company a Has Inventory at the End of the Year