Gladding, Inc. applies the lower-of-cost-or-market rule to the entire stock of its inventory in the aggregate. At the end of the accounting period, it is determined that the cost of the inventory is $26,985 and the market (replacement) value is $25,886. Indicate how the required adjustment affects the elements of the financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. Increase = IDecrease = DNo Effect = NAAssetsLiabilitiesStk. EquityRevenuesExpensesNet IncomeStmt of Cash Flows???????
What will be an ideal response?
(D) (NA) (D) (NA) (I) (D) (NA)
Because the market value of the entire stock of inventory in the aggregate is lower than cost, the company will write down the inventory to the lower market value. The write-down will decrease assets (inventory) and stockholders' equity (retained earnings). It increases expenses [cost of goods sold (if material) or operating expenses (if immaterial)], which decreases net income. It does not affect the statement of cash flows.
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Answer the following statement true (T) or false (F)
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a. true b. false
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