Some of P and Y Electronics’ merchandise is gathering dust. It is now December 31, 2015, and the current replacement cost of the ending merchandise inventory is $ 30,000 below the business’s cost of the goods, which was $ 95,000. Before any adjustments at the end of the period, the company’s Cost of Goods Sold account has a balance of $ 415,000.

Requirements

1. Journalize any required entries.

2. At what amount should the company report merchandise inventory on the ­balance sheet?

3. At what amount should the company report cost of goods sold on the income statement?

4. Which accounting principle or concept is most relevant to this situation?