Problem 1: (Lower-of-Cost-or-Market-Journal Entries)
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. This information is presented below.
Cost Lower-of-Cost-or-Market
12/31/07 $346,000 $327,000
12/31/08 410,000 395,000
Instructions:
(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.
(b) Prepare 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 a perpetual system.
(c) Which of the two methods above provides the higher net income in each year?
Problem 2: (Retail Inventory Method)
The records of Ellen's Boutique report the following data for the month of April.
Sales $99,000 Purchases (at cost) $48,000
Sales returns 2,000 Purchases (at sales price) 88,000
Markups 10,000 Purchase returns (at cost) 2,000
Markup cancellations 1,500 Purchase returns (at sales price) 3,000
Markdowns 9,300 Beginning inventory (at cost) 30,000
Markdown cancellations 2,800 Beginning inventory (at sales price) 46,500
Freight on purchases 2,400
Instructions: Compute the ending inventory by the conventional retail inventory method.