At 12/31/20, the end of Company's first year of business, inventory was $6,800 and $5,200 at cost

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Question:

At 12/31/20, the end of Company's first year of business, inventory was $6,800 and $5,200 at cost and at market, respectively.

Following is data relative to the 12/31/21 inventory of Jenner:

Item	Original Cost Per Unit	Replacement Cost
A	$0.75	$0.40
B	0.45	0.40
C	0.60	0.65
D	0.80	0.70
E	0.90	0.85

Selling price is $1.00/unit for all items. Disposal costs amount to 10% of selling price and a "normal" profit is 20% of selling price. There are 1,400 units of each item in the 12/31/21 inventory.

Prepare the entry at 12/31/20 necessary to implement the lower-of-cost-or-market procedure assuming Oriole uses a contra account for its balance sheet.

Date	Account Titles and Explanation	Debit	Credit
12/31/20	Cost of Goods Sold Profit Due to Market Decline of Inventory Loss Due to Decline of Inventory to Market Recovery Due to Market Incline of Inventory Allowance to Reduce Inventory to Market
	Loss Due to Decline of Inventory to Market Profit Due to Market Decline of Inventory Recovery Due to Market Incline of Inventory Allowance to Reduce Inventory to Market Cost of Goods Sold

Complete the last three columns in the 12/31/21 schedule below based upon the lower-of-cost-or-market rules.

Item	Original Cost Per Unit	Replacement Cost	Net Realizable Value	Net Realizable Value Less Normal Profit	Appropriate Inventory Value
A	$0.75	$0.40	$	$	$
B	0.45	0.40
C	0.60	0.65
D	0.80	0.70
E	0.90	0.85
	$				$

Prepare the entries necessary at 12/31/21 based on the data above.

Date	Account Titles and Explanation	Debit	Credit
12/31/21	Recovery Due to Market Incline of Inventory Allowance to Reduce Inventory to Market Profit Due to Market Decline of Inventory Cost of Goods Sold Loss Due to Decline of Inventory to Market
	Loss Due to Decline of Inventory to Market Allowance to Reduce Inventory to Market Cost of Goods Sold Profit Due to Market Decline of Inventory Recovery Due to Market Incline of Inventory
	(To record cost of goods sold)
12/31/21	Recovery Due to Market Incline of Inventory Cost of Goods Sold Loss Due to Decline of Inventory to Market Profit Due to Market Decline of Inventory Allowance to Reduce Inventory to Market
	Recovery Due to Market Incline of Inventory Loss Due to Decline of Inventory to Market Allowance to Reduce Inventory to Market Cost of Goods Sold Profit Due to Market Decline of Inventory
	(To record profit/ loss)

How are inventory losses disclosed on the income statement?

Inventory losses can be disclosed separately below gross profit in operating expensesgross profit in selling expensesgross profit in administration expenses
or they can be shown as part of cost of goods manufacturedcost of goods available for salecost of goods sold