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### Intermediate Accounting (Kieso)

Book edition 16th
Author(s) Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
Pages 1552 pages
ISBN 9781118743201

# Malone Company determined its ending inventory at cost and at LCNRV at December 31, 2017, December 31, 2018, and December 31, 2019, as shown below. Cost NRV 12/31/17 $650,000$650,000 12/31/18 780,000 712,000 12/31/19 905,000 830,000 Instructions (a) Prepare the journal entries required at December 31, 2018, and at December 31, 2019, assuming that a perpetual inventory system and the cost-of-goods-sold method of adjusting to LCNRV is used. (b) Prepare the journal entries required at December 31, 2018, and at December 31, 2019, assuming that a perpetual inventory is recorded at cost and reduced to LCNRV using the loss method.

a. Journal entries under the cost of goods sold method are given in Step 2.

b. Journal entries under the loss method are given in Step 3.

See the step by step solution

## Calculation of LCRNRV and reduction in inventory

LCNRV for each date is calculated as follows:

 Cost NRV LCNRV Reduction in Inventory(Cost – LCNRV) 12/31/17 $650,000$650,000 $650,000$0 12/31/18 780,000 712,000 712,000 68,000 12/31/19 905,000 830,000 830,000 75,000

Journal entries under cost of goods sold method

## Journal entries under cost of goods sold method

a. Journal entries are as follows:
 Date Description Debit Credit 12/31/17 No Entry 12/31/18 Cost of goods sold $68,000 Inventory$68,000 12/31/19 Cost of goods sold $75,000 Inventory$75,000

## Journal entries under the loss method

(b) Journal entries are as follows:

 Date Description Debit Credit 12/31/17 No Entry 12/31/18 Loss due to market decline of inventory $68,000 Allowance to reduce inventory to market$68,000 12/31/19 Loss due to market decline of inventory $7,000 Allowance to reduce inventory to market$7,000

## Calculation of loss in 2019

Inventory loss in 2019 is calculated as follows: