Problem: Corrs Company began operations in 2007 and determined its ending inventory at cost and at lower-of-cost-or-market at December 31, 2007, and December 31, 2008. The information is presented below.
|
|
Cost |
|
Lower-of-cost-or-market |
| 31-12-07 |
|
$ 346,000 |
|
$ 327,000 |
|
| 31-12-08 |
|
$ 410,000 |
|
$ 395,000 |
|
Instructjons:
(1) Prepare the journal entries required at December 31, 2007, and December 31, 2008, assuming that the inventory is recorded at market, and a perpetual inventory system (direct method) is used.
(2) Prepare the journal entries required at December 31, 2007, and December 31, 2008, assuming that the inventory is recorded at cost and an allowance account is adjusted at each year end under the perpetual system.
(3) Which of the two methods aboce provides the higher net income in each year?