Ontario Garden Supplies uses a perpetual inventory system. They have these accounts at balance at October 31st 2014 prior to making the end of year adjustments.

Inventory Cot of Goods Sold Sales Revenue

Beginning Balance: $10,500 Bal:$ 74,000 Bal: $118,000

Ending Balance: $15000

A year ago, the replacement cost of ending inventory was $13,500 ,which exceeded cost of $10,500. Ontario Garden Supplies has determined that the replacement cost of the October 31st 2014 ending inventory is $12,500.

Requirement.

1. Prepare Ontario Garden Supplies' 2014 Income Statement through gross profit to show how the company would apply the lower of cost or market rule to its inventories