At December 31, the Postotnik Company Has Ending Inventory with a Historical

question 7

Multiple Choice

At December 31, the Postotnik Company has ending inventory with a historical cost of $630,000. Assume the company uses the perpetual inventory system. The current replacement cost of the inventory is $608,000. The net realizable value is $650,000. The normal profit on this inventory is $50,000. Before any adjustments at the end of the period, the cost of goods sold has a balance of $900,000. Following IFRS, which journal entry is required on December 31 to adjust the ending balance of inventory if the direct method is used?

• A) No journal entry is required.
• B) Debit Cost of Goods Sold $20,000 and credit Inventory $20,000.
• C) Debit Inventory $20,000 and credit Cost of Goods Sold $20,000.
• D) Debit Cost of Goods Sold $22,000 and credit Inventory $22,000.

Understand how unearned revenues are recognized and adjusted in financial statements.

Grasp the importance of accurate adjusting entries on the financial statements' accuracy and compliance.

Identify the impact of adjusting entries on the income statement and balance sheet.

Distinguish between the historical cost, book value, and market value of assets.

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Definitions:

Normal Good

A good for which demand increases as consumer income rises and decreases when consumer income falls.

Substitute

A good or service that can be used in place of another to satisfy consumer needs or wants.

Dr. Pepper

A brand of carbonated soft drink created in the United States and well-known for its unique flavor.

Law Of Demand

The negative relationship between price and quantity demanded: Ceteris paribus, as price rises, quantity demanded decreases; as price falls, quantity demanded increases.