(Lower of Cost or Market—Journal Entries) Dover Company began operations in 2012 and determined its ending inventory at cost and at lower of cost or market at December 31, 2012, and December 31, 2013. This information is presented below.
|
Cost |
Lower of Cost or Market |
|
|
12/31/2012 |
$346,000 |
$322,000 |
|
12/31/2013 |
410,000 |
390,000 |
Instructions
(a) Prepare the journal entries required at December 31, 2012, and December 31, 2013, assuming that the inventory is recorded at lower of cost or market, and a perpetual inventory system. Assume the cost of goods sold method with no allowance used.
(b) Prepare journal entries required at December 31, 2012, and December 31, 2013, assuming that the inventory is recorded at lower of cost or market, and a perpetual inventory system. Assume the loss method with an allowance used.
(c) Which of the two methods above provides the higher net income in each year?