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I Need the Solution for thefollowing Problem. Any help is appreciated.

Lower of Cost or Market

Problem:

The inventory records of Frost Company for the years 2016 and2017 reveal the cost and market of the January 1, 2016, inventoryto be $125,000. On December 31, 2016, the cost of inventory was$130,000, while the market value was only $128,000. The December31, 2017, market value of inventory was $140,000, and the cost wasonly $135,000. Frost uses a perpetual inventory system.

Required:

Assume the inventory that existed at the end of 2016 was sold in2017. Prepare the journal entries at the end of 2016 and 2017 torecord the lower of cost or market under the:

allowance method

direct method

Show the presentation of cost of goods sold and inventory onFrost's income statement and balance sheet for 2016 and 2017 underthe:

allowance method (assume the cost of goods sold prior toapplying the lower of cost or market was $595,000 and $605,000 for2016 and 2017, respectively)

direct method

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Bunny Greenfelder
Bunny GreenfelderLv2
28 Sep 2019

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ABC uses a periodic inventory system, and the ending inventoryfor each year is determined by taking a complete hysical inventoryat year-end. A physical count was taken on December 31, 2016, andthe inventory on-hand at that time totaled $55,000, which reflectshistorical cost. Record the adjusting entry for properlyrecognizing 2016 Cost of Goods Sold. Additionally, ABC adheres toGAAP by recording ending inventory at the lower of cost and netrealizable value at a total inventory level. A review of inventorydata further indicated that the current retail sales value of theending inventory is $50,000 and estimated costs of completion andshipping is 15% of retail. Be sure to make an additionaladjustment, if necessary, to properly value ending inventoryusingthe Loss and Allowance methodology. For Income Statementpresentation purposes, be sure to use the Loss Method foraccountingfor adjustments of inventory to market value.

additional Info

Purchases 247000

Question

The A&J Company uses the Lower of Cost or Net Realizable Value method to value its inventory. At the end of 2016 A&J had a balance of $42,000 in the “Allowance to Reduce Inventory to NRV” account.

Inventory Cost and NRV data for December 31, 2017, 2018 and 2019 is shown below:

Cost LCNRV

2017 $822,000 $760,000

2018 $829,000 $789,000

2019 $935,000 $885,000

Required:

1)Prepare journal entries for December 31, 2017, December 31, 2018 and December 31, 2019 assuming the inventory is recorded at LCNRV and a perpetual inventory system is used. Assume the loss method with an allowance is used.

2)Prepare journal entries for December 31, 2017, December 31, 2018 and December 31, 2019 assuming the inventory is recorded at LCNRV and a perpetual inventory system is used. Assume the cost of goods method with an allowance is used.

3)What is the net inventory value that would appear on the balance sheet for both methods at the end of 2019?

Question # 2

The M&E Company had a fire that destroyed most of its inventory and would like to put in a claim with its insurance company. Records indicate the following:

Inventory (beg of year): $160,000 Sales revenue: $880,000

Purchases: $580,000 Sales returns: $ 42,000

Purchase returns: $ 56,000 Freight in: $ 5,000

Gross profit based on selling price: 40%

Merchandise inventory at cost totaled $12,000 and merchandise inventory with a selling price of $40,000 (hint, must convert to cost) remained undamaged.

Required:

Calculate the amount of inventory loss that M&E can claim.

ABC uses a periodic inventory system, and the ending inventory for each year is determined by taking a complete physical inventory at year-end. A physical count was taken on December 31, 2014, and the inventory on-hand at that time totaled $75,000, which reflects historical cost.​Purchases are $350,000.

Record the 2014 Cost of Goods Sold and the 12/31/14 Inventory adjustment.

Additionally, ABC adheres to GAAP by recording ending inventory at the lower of cost and net realizable value at a total inventory level. A review of inventory data further indicated that the current retail sales value of the ending inventory is $110,000 and estimated costs of completion and shipping is 15% of retail. Be sure to make an additional adjustment, if necessary, to properly value ending inventory using the Loss and Allowance methodology. For Income Statement presentation purposes, be sure to use the Loss Method for accounting for adjustments of inventory to market value.​

Please Help! I’m not sure about the Loss method for accounting for adjustments of inventory to market value.

I have the following:

BOOK VALUE (HISTORICAL COST) = 75,000

NRV = MV+ESTIMATED COST​

110,000 + 15% of 110,000 = NRV 93,500

There is no adjustment required since historical cost is less than NRV.

You can only make allowance for losses not profit. Is that correct or do I need to make an entry for $16,500?

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