Question - Cherry Falls Inc. (CFI) sells Red Sox baseball hats. CFI uses the perpetual method of accounting for inventory, and the gross method for recording sales discounts. CFI prepares monthly financial statements.
CFI is preparing financial statements at 9/30. The inventory cost at September 30 is $1,200. Because the Red Sox are in the World Series, CFI determines that the Net Realizable Value is $2,000.
What is the effect on net income for this transaction? Note: if the event would NOT cause recognition of revenue or expense then select A: No effect on net income.
A. No effect on net income
B. Decrease net income
C. Increase net income