Q30PGA_3 - Horngren'S Financial And Managerial Accounting

Question

Some of M and C Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is \(24,000 below the business’s cost of the goods, which was \)97,000. Before any adjustments at the end of the period, the company’s Cost of Goods Sold account has a balance of $380,000.

 

Requirements

3. At what amount should the company report cost of goods sold on the income statement?

Step-by-Step Solution

Answer

COGS would be reported for $453,000 in the income statement.

Step-by-Step Solution Step 1: Cost of goods sold

The cost of goods sold is the direct material cost that is incurred for producing goods or services. This direct material cost includes raw material cost, transportation cost, installation cost, and any other value reduction in the inventory in the normal course of business.

Step 2: COGS on the income statement

In the given case, The COGS has already been given at the value of $380,000. But there is a loss in inventory value due to the LCM rule. This loss has been adjusted to COGS in the previous sub-part.

So the new value of COGS to be reported on the balance sheet would be – 

$$\begin{gathered} \mathrm{COGS} \mathrm{to} \mathrm{be} \mathrm{reported} = \mathrm{Given} \mathrm{value} \mathrm{of} \mathrm{COGS} + \mathrm{Adjustment} \\ =\$380,000+\$73,000 \\ =\$453,000 \end{gathered}$$