At the end of a reporting period, Gamble Corporation determines that its ending inventory has a cost of $300,000 and a market value of $230,000. What would be the effect(s) of the adjustment to write down inventory to market value?

Question

Quizplus · Accepted Answer

Writing inventory down to market value will result in a decrease in both total assets (as inventory is recorded at the lower of cost or market value) and net income (as the decrease in inventory value will be recognized as an expense). This adjustment does not affect retained earnings directly.

At the End of a Reporting Period, Gamble Corporation Determines