Miller Company began operations in 2013 and as presented below determined its en
ID: 2450257 • Letter: M
Question
Miller Company began operations in 2013 and as presented below determined its ending inventory at cost and at NRV as of December 31, 2013, December 31, 2014, and December 31, 2015.
Date Cost Net Realizable Value
12/21/2013 356,000 338,000
12/31/2014 336,000 312,000
12/31/2015 316,000 350,000
1. Prepare the journal entries required at December 31, 2013, 2014, and 2015 using a contra-asset account assuming that the inventory is recorded at LCNRV under a perpetual inventory system using the cost-of-goods-sold method.
2. Prepare journal entries required at December 31, 2013, 2014, and 2015 using a contra-asset account assuming that the inventory is recorded at LCNRV under a perpetual sysetem using the loss method.
3. In each year which of the two methods above provides the higher net income?
Explanation / Answer
1. The following journal entries should be prepared at December 31, 2013, 2014, and 2015 using a contra-asset account assuming that the inventory is recorded at LCNRV under a perpetual inventory system using the cost-of-goods-sold method.
2. The following journal entries should be prepared at December 31, 2013, 2014, and 2015 using a contra-asset account assuming that the inventory is recorded at LCNRV under a perpetual system using the loss method.
3. In each year both the methods will provide the same amount of net income.