Given the following information for the Network Company: Date Cost Market Decemb
ID: 2533863 • Letter: G
Question
Given the following information for the Network Company:
Date
Cost
Market
December 31, 2004
$ 800
$ 800
December 31, 2005
1,000
920
December 31, 2006
1,100
1,050
If the allowance method of recording lower of cost or market is in use, which December 31, 2006 entry is correct?
a.
Loss Due to Market Valuation 50
Allowance to Reduce Inventory to Market 50
b.
Allowance to Reduce Inventory to Market 30
Loss Recovery Due to Market Valuation 30
c.
Inventory 1,050
Income Summary 1,050
d.
Income Summary 920
Inventory 920
Date
Cost
Market
December 31, 2004
$ 800
$ 800
December 31, 2005
1,000
920
December 31, 2006
1,100
1,050
Explanation / Answer
The right answer is option (c)
While closing the books of accounts and passing closing entries,the above entry is passed. As a result, Inventory will be valued at lower of cost ($ 1100) or market value ($ 1050) ie., $ 1050.
Accounts title and Explanation Debit Credit Inventory 1050 Income summary 1050Related Questions
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