Shipman, Inc. has 7 units in inventory on December 31. The units were purchased in November for $190 each. The price lists from suppliers indicate the current replacement cost of the item to be $186 each
What is the effect on gross profit if Shipman values its ending merchandise inventory using the lower-of-cost-or-market rule?
A) The gross profit would increase by $4.
B) The gross profit would not be affected.
C) The gross profit would decrease by $28.
D) The gross profit would increase by $28.
C .Merchandise Inventory to be written down to market value
Total amount to be written down from Merchandise Inventory
Because this will increase the cost of goods sold by $28, the gross profit will decrease by $28.
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