Question

Marigold Company began operations in 2019 and determined its ending inventory at cost and at lower-of-LIFO cost-or-market at December 31, 2019, and December 31, 2020. This information is presented below: Cost Lower-of-Cost-or-Market 12/31/19 $355,570 $338,310 12/31/20 374,580 361,170 (a) Prepare the journal entries required at December 31, 2019, and December 31, 2020, assuming that the inventory is recorded at market, and a perpetual inventory system (cost-of-goods-sold method) is used. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit 12/31/19 12/31/20 (b) Prepare journal entries required at December 31, 2019, and December 31, 2020, assuming that the inventory is recorded at market under a perpetual system (loss method is used)

Answer 1

Answer:

Under the cost of good sold method no journal entry will be required. The entries will constitute adjusted along with the sales.

Under the loss method we immediately pass a debit charge to cost of goods sold in the P&L, not awaiting its sales happening.

This makes the net income in that year lower. And makes the costs of goods sold method give a higher net income.

Explanation: