At the end of the year, Katerinos Company is applying the lower-of-cost-or-market rule to inventory. The company uses the perpetual inventory system. The company has the following data before year-end adjustments:

Cost of Goods Sold
$500,000
Ending Inventory (FIFO cost)
$120,000
Ending Inventory (Current Replacement Cost)
$105,000
Ending Inventory (Net Realizable Value)
$115,000
Ending Inventory (Net Realizable Value - Normal Profit)
$100,000

Required:
1. Following U.S. GAAP, prepare the required journal entry at year-end. The company uses the direct method when applying the lower-of-cost-or-market rule.
2. Following IFRS, prepare the required journal entry at year-end. The company uses the direct method when applying the lower-of-cost-or-market rule.

What will be an ideal response?

Answer:
1.
Account
Account
Debit
Credit
Cost of Goods Sold

15,000

Inventory

15,000

$120,000 - $105,000 = $15,000

2.
Account
Account
Debit
Credit
Cost of Goods Sold

5,000

Inventory

5,000

$120,000 - $115,000 = $5,000