Q3P.
Question
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.
Step-by-Step Solution
Verifieda. 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.
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
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 |
(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 |
Inventory loss in 2019 is calculated as follows: