Problem - 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
12/31/12 $365,930 $338,180
12/31/13 445,900 424,960
(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?