Instructions The following are the inventories for the years 2016, 2017, a nd 20

Question

Instructions The following are the inventories for the years 2016, 2017, a nd 2018 for Parry Company: Cost Market January 1, 2016 $50,000 $50,000 December 31, 2016 64,000 60,000 December 31, 2017 71,000 70,000o December 31, 2018 75,000 78,000 Required: 1. Assume the inventory that existed at the end of each year was sold in the subsequent year Prepare journal entries to record the lower of cost or market for each of the following alternatives. a. allowance method, perpetual inventory system b. direct method, perpetual inventory system 2. Next Level Exp lain any differences in inventory valuation and income between the two methods.

Explanation / Answer

Effects on Income Periodic Perpetual 31-Dec-16 ($4,000) ($4,000) 31-Dec-17 ($1,000) ($1,000) 31-Dec-18 $0 $0 Allowance Method Inventory Valuation Periodic Perpetual 31-Dec-16 $64,000 $64,000 31-Dec-17 $71,000 $71,000 31-Dec-18 $75,000 $75,000 Direct Method Inventory Valuation Periodic Perpetual 31-Dec-16 $60,000 $60,000 31-Dec-17 $70,000 $70,000 31-Dec-18 $75,000 $75,000

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