Plant Company began operations in 2016 and determined its ending inventory at co
ID: 2565135 • Letter: P
Question
Plant Company began operations in 2016 and determined its ending inventory at cost and at lower-of-LIFO-cost-or-market at December 31, 2016, and December 31, 2017. This information is presented below.
Cost Lower-of-Cost-or-Market
December 31, 2016 $87,000 $71,000
December 31, 2017 100,000 98,000
December 31, 2018 97,000 97,000
A. Prepare the journal entries assuming that the inventory is recorded at market, and a perpetual inventory system (cost-of-goods-sold method) is used.
B. Prepare journal entries required at December 31, 2016, December 31,2017 and December 31, 2018, assuming that the inventory is recorded at market under a perpetual system (loss method is used).
C. Which of the two methods above provides the higher net income in each year?
Explanation / Answer
1 December 31, 2016 COGS - FG Provision Dr. 16000 Inventory - FG 16000 December 31, 2017 COGS - FG Provision Dr. 2000 Inventory - FG 2000 2 December 31, 2016 Inventory written down A/c Dr. 16000 Inventory - FG 16000 December 31, 2017 Inventory written down A/c Dr. 2000 Inventory - FG 2000 3 Both will report the same amount of net income. As the same would be deducted from Profit.