Roland Richard, a baker, purchased 200 ounces off of an expensive spice for $400 on 3/1/09. The journal entry to record the purchase was:

3/1/09 Spice Inventory 400
Cash 400

By December, 12/31/09, there were 80 ounces on hand. Which of the following is the correct adjusting journal entry for 12/31/09?

A. debit Spice Expense and credit Spice Inventory 160
B. debit Spice Inventory and credit Spice Expense 160
C. debit Spice Inventory and credit Spice Expense 240
D. debit Spice Expense and credit Spice Inventory 240

The correct adjusting journal entry for 12/31/09:

D. debit Spice Expense and credit Spice Inventory 240

Explanation:

Roland Richard purchased 200 ounces off of an expensive spice for $400.

Cost per ounce = $400/200 = $2

By December, 12/31/09, there were 80 ounces on hand. Roland Richard used 120 ounces of expensive spice with the amount of expense: $2 x 120 = $240

The adjusting journal entry for 12/31/09:

Debit Spice Expense $240

Credit Spice Inventory $240

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