Barrington Company must write down its inventory from its cost of $260,000 to its net realizable value of $248,000 at December 31, 2016. The inventory will all be sold in the year 2017. Which of the following provides a correct effect of the write-down?
A)The 2016 gross profit decreases by $12,000.
B)The 2017 cost of goods sold increases by $12,000.
C)The 2017 ending inventory increases by $12,000.
D)The 2017 gross profit is not affected if the inventory is sold during 2017.

Question

Quizplus · Accepted Answer

The write-down of inventory decreases the 2016 gross profit by $12,000 because the loss is recognized in the year the write-down occurs.

Barrington Company Must Write Down Its Inventory from Its Cost