Abel Company must write-down its inventory by $30,000 to the net realizable value of $450,000 at December 31, 2016. What is the effect of this writedown on the year 2016 financial statements?
A)Decrease cost of goods sold.
B)Decrease ending inventory on the balance sheet.
C)Increase pretax income.
D)Decrease accounts payable.

Question

Quizplus · Accepted Answer

The writedown will decrease the value of inventory on the balance sheet, resulting in a decrease in ending inventory. This decrease will also decrease the reported assets and equity on the balance sheet. The writedown does not affect cost of goods sold or accounts payable, and will decrease pretax income by the amount of the writedown.

Abel Company Must Write-Down Its Inventory by $30,000 to the Net