Naturally Good Foods reports inventory at the lower

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E6-25 Applying the lower-of-cost-or-market rule to inventories [5 min]

Naturally Good Foods reports inventory at the lower of average cost or market.
Prior to releasing its March 2012 financial statements, Naturally’s preliminary
income statement, before the year-end adjustments, appears as follows:

NATURALLY GOOD FOODS
Income Statement (partial)
For the year ended March 31, 2012

Sales revenue $ 117,000
Cost of goods sold 45,000
Gross profit $ 72,000

Requirements

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

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