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Question 5BE

Expert-verified
Found in: Page 475

### Intermediate Accounting (Kieso)

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

# Kumar Inc. uses LIFO inventory costing. At January 1, 2017, inventory was $214,000 at both cost and market value. At December 31, 2017, the inventory was$286,000 at cost and $265,000 at market value. Prepare the necessary December 31 entry under (a) the cost-of-goods-sold method and (b) the loss method. (a) To record the decline in inventory, the cost of goods sold will be debited, and the inventory will be credited by$21,000, respectively.

(b) To record the decline, the loss due to the decline of inventory to market will be debited, and the allowance to reduce inventory to market will be credited by $21,000, respectively. See the step by step solution ### Step by Step Solution ## Calculation of decline in inventory Inventory at cost equals$286,000 and at market equals $265,000. Hence, per the lower-of-cost-or-market method, the inventory value equals$265,000.

The decline is calculated as follows:

## Journal entry under the cost of goods sold method

(a) Entry under the cost of goods sold method is as follows:

 Date Accounts Debit Credit Cost of Goods Sold $21,000 Inventory$21,000

## Journal entry under the loss method

(b) Entry under the loss method is as follows:

 Date Accounts Debit Credit Loss Due to Decline of Inventory to Market $21,000 Allowance to Reduce Inventory to Market$21,000