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The inventory records of Frost Company for the years 2016 and 2017 reveal the cost and...

The inventory records of Frost Company for the years 2016 and 2017 reveal the cost and market of the January 1, 2016, inventory to be $125,000. On December 31, 2016, the cost of inventory was $130,000, while the market value was only $128,000. The December 31, 2017, market value of inventory was $140,000, and the cost was only $135,000. Frost uses a perpetual inventory system.

Required:
1. Assume the inventory that existed at the end of 2016 was sold in 2017. Prepare the journal entries at the end of 2016 and 2017 to record the lower of cost or market under the:
a. allowance method
b. direct method
2. Show the presentation of cost of goods sold and inventory on Frost’s income statement and balance sheet for 2016 and 2017 under the:
a. allowance method (assume the cost of goods sold prior to applying the lower of cost or market was $595,000 and $605,000 for 2016 and 2017, respectively)
b. direct method

Solutions

Expert Solution

Dr Cr
a) Allowance method
1 Income Summary $125,000
Inventory $125,000
(first beginning Inventory is closed)
Inventory $13,000
Income Summary $13,000
(135000-125000)+(128000-125000)
Loss Due to Market Valuation $2,000
Allowance to reduce Inventroy to market $2,000
(130000-128000)
2017 Income Summary $128,000
Allowance to reduce Inventroy to market $2,000
Inventory 13000
Inventory $135,000
1b Income Summary $125,000
Inventory $125,000
(first beginning Inventory is closed)
Inventory $128,000
Income Summary $128,000
2017 Income Summary $128,000
Inventory $128,000
record ending inventory
Inventory $135,000
Income Summary $135,000
ans 2
a) Cost of Good sold
2016 608000 595000+13000
2017 594000 605000-13000+2000
Inventory in Balance sheet
2016 130000
2017 135000
n)
b Cost of Good sold
2016 592000 595000-3000
2017 585000 605000-7000
Inventory in Balance sheet
2016 128000
2017 135000

ekkarill92 answered 1 year ago
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