Question

Should have two general journals, one for dec 31 2016 and one for dec 31 2017.

The inventories of Berry Company for the years 2016 and 2017 are as follows:

Cost
Market
January 1, 2016 $10,000 $10,000
December 31, 2016 13,000 11,500
December 31, 2017 15,000 14,000

Berry uses a perpetual inventory system.

Required:
1. Assume the inventory that existed at the end of 2016 was sold in 2017. Prepare the necessary journal entries at the end of each year to record the correct inventory valuation if Berry uses the:

a. direct method
b. allowance method

2. Next Level Explain any differences in inventory valuation and income between the two methods.

NEXT LEVEL: Complete the statements below that explain any differences in inventory valuation and income between the two methods.

The two methods produce the same   net inventory valuations and have the same   effects on net income. At the end of 2017, inventory would be valued at ______ under the direct method and _______ under the allowance method. Income would be reduced by _________ after the entry to reduce inventory to market under the direct method and ________ after the entry to reduce inventory to market under the allowance method.

Answer 1

Date/S.N.	Account title & Explanation		Debit	Credit
			Amount in $	Amount in $
under Direct Method
December 31, 2016	Cost of goods sold		1500
		Inventory		1500
	To record the reduction of inventory from cost to market
December 31, 2017	Cost of goods sold		1000
		Inventory		1000
	To record the reduction of inventory from cost to market
Under Allowance Method
December 31, 2016	Loss due to Market Decline of Inventory		1500
		Allowance to reduce Inventory to Market		1500
	To record the reduction of inventory from cost to market
December 31, 2017	Loss due to Market Decline of Inventory		1000
		Allowance to reduce Inventory to Market		1000
	To record the reduction of inventory from cost to market
The two methods produce the same net inventory valuations and have same effects on the net
Income . At the end of 2017, Inventory would be valued at $14000 under the direct method and
$14000 under the allowance method. Income would be reduced by $1000 after the
entry to reduce inventory to market under direct method and $1000 after the entry to
reduce the inventory to market under the allowance method.