Naturally Good Foods reports merchandise inventory at the lower of cost or market. Prior to releasing its financial statements for the year ended March 31, 2015, Naturally’s preliminary income statement, before the year- end adjustments, appears as follows:

NATURALLY GOOD FOODS

Income Statement (Partial)

Year Ended March 31, 2015

Sales Revenue ............$ 72,000

Cost of Goods Sold ......... 45,000

Gross Profit ............. $ 117,000

Naturally has determined that the current replacement cost of ending merchandise inventory is $ 17,000. Cost is $ 18,000.

Requirements

1. Journalize the adjusting entry for merchandise inventory, if any is required.

2. Prepare a revised partial income statement to show how Naturally Good Foods should report sales, cost of goods sold, and gross profit.