Oak Ridge Garden Supplies uses a perpetual inventory system. The company has these account balances at May 31, 2018, prior to making the year-end adjustments:

A year ago, the net realizable value of ending inventory was $11,500, which exceeded the cost of $10,000. Oak Ridge has determined that the net realizable value of the May 31, 2018, ending inventory is $12,000.

Requirement

1. Prepare the company’s 2018 income statement through gross profit to show how the company would apply the lower-of-cost-or-market rule to its inventories.

Transcribed Image Text:

Inventory Cost of Goods Sold Sales Revenue Beg bal 10,000 End bal 13,000 Bal Bal 71,000 120,000