Question

At the end of the year, Marline Corporation determines that its ending inventory has a cost of $2,000 and a net realizable value of $1,900. What would be the effect of the adjustment to write down inventory to net realizable value

Answer 1

The answer is explained below;

Step-by-step explanation:

Inventory Cost ($2,000)

Net Realizable Value $1,900

Amount written off ($100)

This $100 amount will decrease our net income on first instance and will also decrease our inventory.As a result of decrease in net income, the retained earnings will also get decreased and decrease in inventory will also decrease total assets in balance sheet.

The journal entry for this will be

Net Income Dr.$100

Inventory Cr.$100