Question - Lower-of-Cost-or-Market-Valuation Account
Presented below is information related to Knight Enterprises.
Jan. 31 Feb. 28 Mar. 31 Apr. 30
Inventory at cost $15,000 $15,100 $17,000 $14,000
Inventory at the lower-of-cost-or-market
14,500 12,600 15,600 13,300
Purchases for the month 17,000 24,000 26,500
Sales for the month 29,000 35,000 40,000
Instructions
(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 thereafter.