Prepare the journal entry required to establish the

Question

Lower-of-Cost-or-Market-Valuation Account Presented below is information related to Knight Enterprises.

(a) From the information, prepare (as far as the data permit) monthly income statements in columnar form for February, March, and April. The inventory is to be shown in the statement at cost, the gain or loss due to market fluctuations is to be shown separately, and a valuation account is to be set up for the difference between cost and the lower-of cost-or-market.

(b) Prepare the journal entry required to establish the valuation account at January 31 and entries to adjust it monthly there after.