At the end of the Year 2 accounting period,DeYoung Company determined that the market value of its inventory was $79,800.The historical cost of this inventory was $81,400.DeFazio uses the perpetual inventory method.Assuming the amount is material,how will the entry necessary to reduce the inventory to the lower of cost or market affect the elements of the company's financial statements?

Question

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The write-down will decrease assets (inventory)and stockholders' equity (retained earnings).It increases expenses (cost of goods sold),which decreases both gross margin and net income.

At the End of the Year 2 Accounting Period,DeYoung Company