Erie Garden Supplies uses a perpetual inventory system. Erie Garden Supplies has these account balances at August 31, 2012, prior to making the year-end adjustments:

A year ago, the replacement cost of ending inventory was $11,500, which exceeded the cost of $10,000. Erie Garden Supplies has determined that the replacement cost of the August 31, 2012, ending inventory is $12,000.

Requirement
Prepare Erie Garden Supplies€™ 2012 income statement through gross profit to show how the company would apply the lower-of-cost-or-market rule to itsinventories.

Transcribed Image Text:

Inventory Cost of Goods Sold Sales Revenue Beg bal 10,000 End bal 14,000 Bal 72,000 Bal 120,000