At the end of the year, Marline Corporation determines that its ending inventory has a cost of $2,000 and a net realizable value of $1,900. What would be the effect of the adjustment to write down inventory to net realizable value

The answer is explained below;

Explanation:

  Inventory Cost                   ($2,000)

  Net Realizable Value          $1,900

  Amount written off                ($100)

This $100 amount will decrease our  net income on first instance and will also decrease our inventory.As a result of decrease in net income, the retained earnings will also get decreased and decrease in inventory will also decrease total assets in balance sheet.

The journal entry for this will be

Net Income             Dr.$100

Inventory                 Cr.$100                          

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