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Blossom Company began operations in 2019 and determined its ending inventory at cost and at lower-of-LIFO-cost-or-market at December 31, 2019, 2020 and 2021.
This information is presented below.
December 31, 2019 Cost $83,520 Lower-of-Cost-or-Market $68,160
December 31, 2020 96,000 94,080
December 31, 2021 93,120 93,120

(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.

(b) Prepare journal entries required at December 31, 2019, and December 31, 2021, assuming that the inventory is recorded at market under a perpetual system (loss method is used).

(c) Which of the two methods above provides the higher net income in each year? Both, COGS Method, or Loss Method?

Respuesta :

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Answer and Explanation:

A. December 31, 2019

$83,520- $68,160

=$15,360

Dr cost of goods sold $15,360

Cr To allowance to reduce inventory to lower of cost $15,360

December 31, 2020

$96,000-$94,080

=$1,920

Dr To allowance to reduce inventory to lower of cost $1,920

Cr Cost of goods sold $1,920

B.

December 31, 2019

$83,520- $68,160

=$15,360

Dr Loss due to decline of inventory to lower of cost

$15,360

Cr Allowance to reduce inventory to lower of cost $15,360

December 31, 2020

$96,000-$94,080

=$1,920

Dr To allowance to reduce inventory to lower of cost $1,920

Cr Inventory loss $1,920

C. Both Cost of goods sold methods and the Loss method have the same effect on net income.

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