Under the principle of lower of cost and net realizable value,when a company has 10 units of inventory A with net realizable value of $50 and a cost of $60,what is the adjustment?

Question

Quizplus · Accepted Answer

The principle of lower cost and net realizable value suggests that when the net realizable value of inventory is less than its cost, the inventory must be written down to its estimated net realizable value. In this case, since the net realizable value of the inventory is $50 and the cost is $60, the inventory must be written down to $50.

The adjustment required to record this write-down is to decrease the value of inventory and increase the cost of goods sold by the difference between the cost and the net realizable value. In this case, the adjustment would be:

Debit Cost of Goods Sold $100; credit Inventory $100.

Therefore, option C is the correct answer.

Under the Principle of Lower of Cost and Net Realizable