QUESTION 1
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: |
| 1. | Assume the inventory that existed at the end of 2016 was soldin 2017. Prepare the journal entries at the end of 2016 and 2017 torecord the lower of cost or market under the: | a. allowance method | | b. direct method |
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| 2. | Show the presentation of cost of goods sold and inventory onFrost’s income statement and balance sheet for 2016 and 2017 underthe: | a. 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) | | b. direct method |
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general journal
Assume Frost uses the allowance method and a perpetual inventorysystem.
| Prepare the necessary journal entries to record: | 1. the correct inventory valuation on December 31, 2016 | | 2. the reduction in inventory when the inventory from December31, 2016 is sold during 2017 Additional Instructions | | 3. the correct inventory valuation on December 31, 2017 (ifnecessary) |
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