Suppose management estimated the lower-of-cost- and net realizable value of some obsolete inventory at $99,000, and wrote it down from $120,000, recognizing a loss of $21,000. The auditors obtained the following information: the inventory in question could be sold for an amount between $78,000 and $92,000. The costs of advertising and shipping could range from $5,000 to $7,000.
a. Would you propose an audit adjustment to the management estimate? Write the appropriate accounting entry.
b. If management’s estimate of inventory market (lower than cost) had been $80,000, would you propose an audit adjustment? Write the appropriate accounting entry.