(Lower of Cost or Market—Valuation Account) Presented below is information related to Knight Enterprises.
|
|
Jan. 31 |
Feb. 28 |
Mar. 31 |
Apr. 30 |
|
Inventory at cost |
$15,000 |
$15,100 |
$17,000 |
$14,000 |
|
Inventory at the lower of cost or market |
14,500 |
12,600 |
15,600 |
13,300 |
|
Purchases for the month |
|
17,000 |
24,000 |
26,500 |
|
Sales for the month |
|
29,000 |
35,000 |
40,000 |
Instructions
(a) From the information, prepare (as far as the data permit) monthly income statements in columnar form for February, March, and April. The inventory is to be shown in the statement at cost, the gain or loss due to market fluctuations is to be shown separately, and a valuation account is to be set up for the difference between cost and the lower of cost or market.
(b) Prepare the journal entry required to establish the valuation account at January 31 and entries to adjust it monthly thereafter.