A company discovered that inventory that cost $2 000 and normally sells for $2 400 has become obsolete and will be scrapped next month. The effect of the adjusting journal entry is to:
A) decrease profit by $2 000 and decrease total assets by $2 000.
B) decrease profit by $2 400 and decrease total assets by $2 000.
C) decrease profit by $2 400 and decrease total assets by $2 400.
D) decrease profit by $2 000 and not affect total assets.

Question

Quizplus · Accepted Answer

The correct adjustment for obsolete inventory is to write down the cost of the inventory ($2,000) as an expense, which decreases profit by the cost of the inventory and decreases total assets by the same amount.

A Company Discovered That Inventory That Cost $2 000 and Normally