Ontario Garden Supplies uses a perpetual inventory system. Ontario Garden Supplies has these account balances at May 31, 2010, prior to making the year-end adjustments:

A year ago, the replacement cost of ending inventory was $13,400, which exceeded the cost of $12,500. Ontario Garden Supplies has determined that the replacement cost of the May 31, 2010, ending inventory is $13,000.

Requirement
1. Prepare Ontario Garden Supplies 2010 income statement through gross profit to show how the company would apply the lower-of-cost-or-market rule to itsinventories.

Transcribed Image Text:

Inventory Cost of Goods Sold Sales Revenue Beg bal 12,500 End bal 13,500 Bal 73,000 Bal 5,000