Question

Lower of Cost or Market General Journal Instructions Chart of Accounts Next Level Instructions The inventories of Berry Company for the years 2016 and 2017 are as follows: Cost Market January 1, 2016 $10,000 $10,000 December 31, 2016 13,000 11,500 December 31, 2017 16,000 14,000 Berry uses a perpetual inventory system. Required: 1. Assume the inventory that existed at the end of 2016 was sold in 2017. Prepare the necessary journal entries at the end of each year to record the correct inventory valuation if Berry uses the: a. direct method b. allowance method 2. Next Level Explain any differences in inventory valuation and income between the two methods.

Answer 1

Journal Entry- Direct Method
Date	Account Tittle	Debit	Credit
12/31/2016	Cost of Goods Sold	$1,500.00
	Inventory (13000-11500)		$1,500.00
	TO Record reduce inventory Value
12/31/2017	Cost of Goods Sold	$2,000.00
	Inventory (16000-14000)		$2,000.00
	TO Record reduce inventory Value

Journal Entry- Allowance Method
Date	Account Tittle	Debit	Credit
12/31/2016	Loss Due to Market Valuation	$1,500.00
	Allowance to reduce inventory to market		$1,500.00
	TO Record reduce inventory Value
12/31/2017	Cost of Goods Sold	$11,500.00
	Allowance to reduce inventory to market	$1,500.00
	Inventory		$13,000.00
	TO Record reduce inventory Value
12/31/2017	Loss Due to Market Valuation	$2,000.00
	Allowance to reduce inventory to market		$2,000.00
	TO Record reduce inventory Value

The two methods produce the same net inventory valuations and have same effects on the net Income