Mario's Nursery uses a perpetual inventory system. At December 31, the perpetual inventory records indicate the following quantities of a particular blue spruce tree:
Quantity Unit Cost Total Cost
First purchase (oldest) 130 $ 25.00 $ 3,250
Second purchase 120 28.50 3,420
Third purchase 100 39.00 3,900
Total 350 $ 10,570
A year-end physical inventory, however, shows only 310 of these trees on hand.
In its financial statements, Mario's values its inventories at the lower-of-cost-or-market. At year-end, the per-unit replacement cost of this tree is $40. (Use $3,500 as the "level of materiality" in deciding whether to debit losses to Cost of Goods Sold or to a separate loss account.)
a. Prepare the journal entries required to adjust the inventory records at year-end, assuming that Mario's uses 1. Average cost, 2. Last-in, first-out