Washington Distribution Co Washington Records Losses That Result from Applying the Lower of on a FIFO

question 48

Multiple Choice

Washington Distribution Co. has determined its December 31, 2020, inventory on a FIFO basis at $240,000. Information pertaining to that inventory follows: $\begin{array}{llcc} \text { Etimated selling price } & \$255,000 \\ \text { Estimated cost of disposal } &10,000\\ \text { Normal profit margin } &30,000\\\end{array}$
Washington records losses that result from applying the lower of cost and net realizable value rule. At December 31, 2020, the loss that Washington should recognize is

• A) $0.
• B) $5,000.
• C) $15,000.
• D) $25,000.

---

Definitions:

Journal Entry

The recordation of a financial transaction in an accounting system, showing the accounts and amounts debited and credited.

Allowance for Doubtful Accounts

A contra-asset account used to estimate the portion of accounts receivable that may not be collectible.

Adjusting Entry

An accounting entry made at the end of an accounting period to record unrecorded income or expenses for that period.

Bad Debt Expense

The recognition of receivables that are not expected to be collected, reflecting anticipated losses on credit sales.