Question

At the end of the year, inventory has a cost of $200,000, net realizable value of...

At the end of the year, inventory has a cost of $200,000, net realizable value of $195,000, replacement cost of $160,000, and normal profit margin of $25,000. Assuming normal business circumstances, prepare the year-end adjusting entry, if any, for inventory using the lower of cost or market approach. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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Answer #1
Net realizable value-normal profit margin = 195000-25000 = $170000
Market = Higher of replacement cost or Net realizable value-normal profit margin
So Market is higher of $160000 or $170000 which is $170000
Inventory valuation = Lower of cost or market or lower of $200000 or $170000 which is $170000
Journal entry:
Cost of goods sold 30000 =200000-170000
        Inventory 30000
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