Response to the following problem:
Revco Drug has been plagued with lackluster sales, and some of the company's merchandise is gathering dust. It is now December 31, 20X7. Assume the current replacement cost of Revco's ending inventory is $700,000 below what Revco paid for the goods, which was $3,900,000. Before any adjustments at the end of the period, assume the Cost of Goods Sold account has a balance of $22,400,000.
What action should Revco take in this situation, if any?
Give any journal entry required. At what amount should Revco report Inventory on the balance sheet?
At what amount should the company report Cost of Goods Sold on the income statement?
Discuss the accounting principle or concept that is most relevant to this situation.