Natural Foods reports merchandise inventory at the lower-of-cost-or-market. Prior to releasing its financial statements for the year ended March 31, 2019, Natural's preliminary income statement, before the year-end adjustments, appears as follows:

Natural has determined that the current replacement cost of ending merchandise inventory is $20,500. Cost is $25,000.

Requirement 1

Options:

Requirement 2

Natural Foods Income Statement (Partial) Year Ended March 31, 2019 Sales Revenue $ 119,000 48,000 Cost of Goods Sold $ 71,000 Gross Profit Requirement 1. Journalize the adjusting entry for merchandise inventory, if any is required. (Record debits first, then credits. Select the explanation on the last line of the journal entry. For situations that do not require an entry, make sure to select "No entry required" in the first cell in the "Accounts" column and leave all other cells blank.) Date Accounts and Explanation Debit Credit Aug. Accounts Payable Cash Cost of Goods Sold Merchandise Inventory Sales Revenue Supplies No entry required Sales Revenue Cost of Goods Sold Gross Profit