Uptown Department Store uses the perpetual inventory system and has ending inventory with a historical cost of $610,000.The current replacement cost of the inventory is $598,000.The net realizable value is $670,000.The company uses LIFO.Before any adjustments at the end of the period,the cost of goods sold account has a balance of $930,000.Which journal entry is required under U.S.GAAP?

Question

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According to U.S. GAAP, the inventory should be written down to its net realizable value if it is lower than the historical cost. In this case, the net realizable value is $670,000, which is higher than the current replacement cost of $598,000 but lower than the historical cost of $610,000. Therefore, the inventory needs to be written down by the difference between the net realizable value and the historical cost, which is $610,000 - $670,000 = $12,000. Since Uptown Department Store uses LIFO, the cost of goods sold will be reduced by the same amount of $12,000, resulting in a debit to Cost of Goods Sold for $12,000 and a credit to Inventory for $12,000. Therefore, the correct journal entry is C, debit Cost of Goods Sold for $12,000 and credit Inventory for $12,000.

Uptown Department Store Uses the Perpetual Inventory System and Has