Malone Company determined its ending inventory at cost and at lower-of-cost-or-m

Question

Malone Company determined its ending inventory at cost and at lower-of-cost-or-market at December 31, 2013, December 31, 2014, and December 31, 2015, as shown below.

Cost

Lower-of-Cost-or-Market

(a) Prepare the journal entries required at December 31, 2014, and at December 31, 2015, assuming that the cost-of-goods-sold method of adjusting to lower-of-cost-or-market is used. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date

Account Titles and Explanation

Debit

Credit

12/31/14

12/31/15

(b) Prepare the journal entries required at December 31, 2014, and at December 31, 2015, assuming that the loss method of adjusting to lower-of-cost-or-market is used. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date

Account Titles and Explanation

Debit

Credit

12/31/14

12/31/15

Cost

Lower-of-Cost-or-Market

12/31/13 $668,500 $668,500 12/31/14 782,600 722,200 12/31/15 923,900 845,000

Explanation / Answer

(Being the decline value of inventory adjusted to inventory value reduce a/c)

cost-of-goods-sold method of adjusting to lower-of-cost-or-market Date Account Titles and Explanation Debit Credit 12/31/14 Cost of goods sold A/c 60400    To Allowance to reduce Inventory to market 60400 (Being the decline value of inventory adjusted to inventory value reduce a/c) 12/31/15 Cost of goods sold A/c 78900    To Allowance to reduce Inventory to market 78900

(Being the decline value of inventory adjusted to inventory value reduce a/c)

Lower-of-cost or market value Date Account Titles and Explanation Debit Credit 12/31/14 Loss due to market decline of inventory 60400 Allowance to reduce inventory market 60400 (Being the inventory loss transferred to inventory loss a/c by using lower of cost or market value) 12/31/15 Loss due to market decline of inventory 78900 Allowance to reduce inventory market 78900 (Being the inventory loss transferred to inventory loss a/c by using lower of cost or market value)

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