Question The A&J Company uses the Lower of Cost or Net Realizable Value method t

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The A&J Company uses the Lower of Cost or Net Realizable Value method to value its inventory. At the end of 2016 A&J had a balance of $42,000 in the “Allowance to Reduce Inventory to NRV” account.

Inventory Cost and NRV data for December 31, 2017, 2018 and 2019 is shown below:

                                                      Cost                  LCNRV

2017                $822,000             $760,000

2018               $829,000             $789,000     

2019               $935,000             $885,000

Required:

1)Prepare journal entries for December 31, 2017, December 31, 2018 and December 31, 2019 assuming the inventory is recorded at LCNRV and a perpetual inventory system is used. Assume the loss method with an allowance is used.

2)Prepare journal entries for December 31, 2017, December 31, 2018 and December 31, 2019 assuming the inventory is recorded at LCNRV and a perpetual inventory system is used. Assume the cost of goods method with an allowance is used.

3)What is the net inventory value that would appear on the balance sheet for both methods at the end of 2019?

Question # 2

The M&E Company had a fire that destroyed most of its inventory and would like to put in a claim with its insurance company. Records indicate the following:

Inventory (beg of year):   $160,000                              Sales revenue:     $880,000             

Purchases:                              $580,000                              Sales returns:      $ 42,000

Purchase returns:               $ 56,000                               Freight in:             $    5,000

Gross profit based on selling price: 40%

Merchandise inventory at cost totaled $12,000 and merchandise inventory with a selling price of $40,000 (hint, must convert to cost) remained undamaged.

Required:

Calculate the amount of inventory loss that M&E can claim.

Explanation / Answer

Cost NRV LCNRV Loss 2017 822000 760000 760000 62000 2018 829000 789000 789000 40000 2019 935000 885000 885000 50000 2586000 2434000 152000 ans 1 Date Accounts Title Dr Cr 31-Dec-17 Loss due to decline of Inventory NRV 62000 Allowance to reduce Inventory to NRV 62000 31-Dec-18 Loss due to decline of Inventory NRV 40000 Allowance to reduce Inventory to NRV 40000 31-Dec-19 Loss due to decline of Inventory NRV 50000 Allowance to reduce Inventory to NRV 50000 ans 2 31-Dec-17 Cost of Good sold 62000 Allowance to reduce Inventory to NRV 62000 31-Dec-18 Cost of Good sold 40000 Allowance to reduce Inventory to NRV 40000 31-Dec-19 Cost of Good sold 50000 Allowance to reduce Inventory to NRV 50000 Loss COGS ans 3 Net Inventory method 885000 885000 There are two different question I have answered the first one.

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