As a result of its annual inventory count, Tarweed Corp. determined its ending inventory at cost and at lower of cost and net realizable value at December 31,2014, and December 31,2015. This information is as follows:

Instructions
(a) Prepare the journal entries required at December 31, 2014 and 2015, assuming that the inventory is recorded directly at the lower of cost and net realizable value and a periodic inventory system is used. Assume that cost was lower than NRV at December 31, 2013.
(b) Prepare the journal entries required at December 31, 2014 and 2015, assuming that the inventory is recorded at cost and an allowance account is adjusted at each year end under a periodic system.
(c) Which of the two methods above provides the higher net income in each year?

Transcribed Image Text:

Dec. 31, 2014 Dec. 31, 2015 Cost $321,000 385,000 Lower of Cost and NRV $283,250 351,250