Question

Corrs Company began operations in 2019 and determined its ending inventory at cost and at lower-of-LIFO cost-or-market at December 31, 2019, and December 31, 2020. This information is presented below: Cost Lower-of-Cost-or-Market 12/31/19 $ 356,000 $ 327,000 12/31/20 420,000 395,000 (a) Prepare the journal entries required at December 31, 2019, and December 31, 2020, assuming that the inventory is recorded at market, and a perpetual inventory system (cost-of-goods-sold method) is used.

Answer 1

The appropriate journal entries required at December 31, 2019, and December 31, 2020, assuming cost-of-goods-sold method and loss method  is used are:

Corrs Company Journal entries

a) December 31, 2019

Debit Cost of goods sold $29,000

Credit Allowance to reduce inventory to NRV $29,000

($356,000- $327,000)

December 31, 2020

Debit Allowance to reduce inventory to NRV $4,000

Credit Cost of goods sold $4,000

($356,000- $327,000)-($420,000-$395,000)

b)   December 31, 2019

Debit Loss due to decline inventory to NRV $29,000

Credit Allowance to reduce inventory to NRV $29,000

($356,000- $327,000)

December 31, 2020

Debit Allowance to reduce inventory to NRV $4,000

Credit Recovery of Inventory loss $4,000

($356,000- $327,000)-($420,000-$395,000)

c)  The two methods above provides the same  higher net income in each year.

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