Bonnie Denim Company sells blue jeans. Last year, skinny jeans were fashionable;

Bonnie Denim Company sells blue jeans. Last year, skinny jeans were fashionable; this year, relaxed-fit jeans are in style. The company has 415 units of skinny jeans with a cost of $19 per unit and a market value of $17 per unit. The inventory also includes 1,040 units of relaxed-fit jeans with a cost of $18 per unit and a market value of $21 per unit.

Required:

Prepare the journal entry, if any, that is required to adjust the Inventory account. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Solutions

Expert Solution

a) The Adjustment Entry is required when the Market value of Inventory is lower than the Cost of Inventory. In the given case, the market value of Skinny Jeans is lower ($17) than the Cost of Inventory ($19), so an adjusting entry is required to record the loss of $830. [415 units*($19-$17)].

For Relaxed Fit Jeans, the Market Value is higher than ($21) than the the Cost of Inventory($18), so no adjusting entry is required.

Journal Entry for Cost of Merchandise Sold:

Transaction General Journal Debit Credit

a) Cost of Goods Sold 830

Inventory 830

(To adjust the market value of Skinny Jeans)

Cost of Goods Sold 830

Inventory 830

S Mahalaxmi answered 2 years ago

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