Suppose management estimated the market valuation of some obsolete inventory at $99,000; this inventory was recorded at $120,000, which resulted in recognizing a loss of $21,000. The auditors obtained the following information: The inventory in question could be sold for an amount between $78,000 and $92,000. The costs of advertising and shipping could range from $5,000 to $7,000.

Required:

a-1.	Would you propose an audit adjustment to the management estimate?

	Yes
	No

a-2.	Prepare the appropriate accounting entry. (In cases where no entry is required, please select the option "No journal entry required" for your answer to grade correctly. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

General Journal	Debit	Credit
(Click to select)DrawingsCashBankLoss (or cost of goods sold)PurchasesInventoryNo journal entry requiredProfit
(Click to select)No journal entry requiredInterest payableCashDrawingsLoss (or cost of goods sold)InventorySales revenueBank

b-1.	If managements estimate of inventory market (lower than cost) had been $80,000, would you propose an audit adjustment?

	Yes
	No

b-2.	Prepare the appropriate accounting entry. (In cases where no entry is required, please select the option "No journal entry required" for your answer to grade correctly. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

General Journal	Debit	Credit
(Click to select)Loss (or cost of goods sold)No journal entry requiredCashBuildingsInventoryDrawingsSales revenuePurchases
(Click to select)BuildingsCashDrawingsLoss (or cost of goods sold)No journal entry requiredInventoryBankSales revenue