JournaldrillInventory write-down
A journal entry exercise from Journaldrill. Solve it with an account picker and debit and credit fields in your browser, and it is checked the moment you submit.
The task
At year end, Northgate Garden Center's inventory has a cost of $18,500. Because of damage and falling prices, its net realizable value is only $16,900. The company measures inventory at the lower of cost and net realizable value and charges write-downs to Cost of Goods Sold.
What this exercise teaches
Net realizable value is $1,600 below cost ($18,500 - $16,900), so inventory must be written down to $16,900. Following the company's policy, Cost of Goods Sold is debited and Inventory is credited for $1,600. The loss is recognized now, in the period the value declined.
A hint if you get stuck
Inventory cannot be carried above what it can be sold for, so reduce the asset and recognize the loss in cost.
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