Ace Manufacturing purchased merchandise inventory for $8,000. At the end of the accounting period it has a market value of $7,800. Using the lower-of-cost-or-market rule, what is the journal entry to record the adjustment

Dr. Cr.

Cost of Goods Sold $200

Merchandise Inventory $200

Explanation:

Inventory is value at Lower of Cost and Net realizable value.

Cost of Inventory = $8,000

Net Realizable Value of Inventory = $7,800

The lower value is the Net realizable value and Inventory should be reported by $7,800 on the balance sheet. The net difference of $200 is adjusted to bring the value of inventory to it net realizable value.

Expense to be recorded = $8,000 - $7,800 = $200