Lower of Cost or Market Frost Company’s inventory records for the years 2016 and 2017 reveal the cost and market of the January 1, 2016, inventory to be $125,000. On December 31, 2016, the cast of inventory was $130,000, while the market value was only $128,000. The December 31, 2017, market value of inventor)' was $140,000, and the cost was only $135,000. Frost uses a periodic inventory' system. Purchases for 2016 were $100,000 and for 2017 were $110,000.
1. Assume the inventory' that existed at the end of 2016 was sold in 2017. Prepare the journal entries at the end of 2016 and 2017 to record the lower of cast or market under the (a) allowance method and (b) direct method.
2. Prepare the cost of goods sold section of the income statement and show how the company would record the inventory' on its balance sheet for 2016 and 2017 under the (a) allowance method and (b) direct method.
3. Next Level Refer to your answer tor P8-3. How does the use of a periodic inventory' system versus a perpetual inventory' system affect the valuation of inventory' and the amount reported as income?

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