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Q3P.

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Intermediate Accounting (Kieso)
Found in: Page 483

Short Answer

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

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:

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