Problem: Mary Stuart Company determined its ending inventory at cost and at lower of cost or market at December 31, 2007 and December 31, 2008 as shown below:
Cost Lower-of-cost-or-market
12/31/2006 $650,000 $650,000
12/31/2007 $780,000 $722,000
12/31/2008 $900,000 $830,000
Instructions:
(A) Prepare the journal entries required at December 31, 2007 and at December 31, 2008 assuming that a perpetual inventory system and the direct method of adjusting to market is used.
(B) Prepare the journal entries required at December 31, 2007 and at December 31, 2008 assuming that a perpetual inventory is recorded at cost and reduced to market through the use of an allowance account (indirect method).