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In: Accounting

Brief Exercise 9-03 Oriole Inc. uses a perpetual inventory system. At January 1, 2020, inventory was...

Brief Exercise 9-03

Oriole Inc. uses a perpetual inventory system. At January 1, 2020, inventory was $215,464,100 at both cost and realizable value. At December 31, 2020, the inventory was $291,500,300 at cost and $268,031,000 at realizable value.

Prepare the necessary December 31 entry under (a) the cost-of-goods-sold method (b) Loss method.

No.

Account Titles and Explanation

Debit

Credit

(a)

enter an account title
enter an account title

(b)

enter an account title
enter an account title

  

  

Solutions

Expert Solution

Part a - Entry under the cost of goods sold method

Under cost of goods sold method, the inventory is recorded at Cost or Net Realizable Value whichever is lower.

Under this method, the cost of goods sold account is adjusted with any decrease in Inventory value.

Net Realizable Value as on Dec 31 = $268,031,000

Cost of Inventory as on Dec 31 = $291,500,300

Difference = $23,469,300

Net Realizable Value is lower so the inventory should be recorded at Net Realizable Value. Following journal entry is to be recorded:

Date

General Journal

Debit

Credit

Dec.31

Cost of Goods Sold

(291,500,300 - 268,031,000)

$23,469,300

Inventory

$23,469,300

(To record Inventory at Net Realizable Value (NRV)

Part b - Journal under under loss method

Under this method, decline of value of inventory from its cost is recorded as Decline of Inventory to NRV

Date

General Journal

Debit

Credit

Dec.31

Loss Due to Decline of Inventory to NRV

$23,469,300

Inventory

$23,469,300

(To record Inventory at Net Realizable Value (NRV)

Hope the above calculations, working and explanations are clear to you and help you to understand the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you


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