Question

Swifty Company began operations in 2020 and determined its ending inventory at cost and at LCNRV at December 31, 2020, and December 31, 2021. This information is presented below Net Realizable Cost Value $349,780 $326,730 12/31/20 12/31/21 413,940 394,520 (a) Prepare the journal entries required at December 31, 2020, and December 31,2021, assuming inventory is recorded at LCNRV and a perpetual inventory system using the cost-of-goods-sold method. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter O for the amounts) Date Account Titles and Explanation Debit Credit 12/31/20 12/31/21 (b) Prepare journal entries required at December 31, 2020, and December 31, 2021. assuming inventory is recorded at LCNRV and a perpetual system using the loss method. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit Date 12/31/20 12/31/21 (c) Which of the two methods above provides the higher net income in each year?

Answer 1

Ans. A & b	Date	Account Titles and Explanations	Debit	Credit
	12/31/2020	Cost of goods sold	$23,050
		Allowance to reduce inventory to market		$23,050
		(Adjusting entry made under cost of goods sold method)
	12/31/2021	Allowance to reduce inventory to market	$3,630
		Cost of goods sold [$23,050 - ($413,940 - $394,520)]		$3,630
	12/31/2020	Loss due to market decline of inventory	$23,050
		Allowance to reduce inventory to NRV		$23,050
		(being adjusting entry made under loss method)
	12/31/2021	Allowance to reduce inventory to NRV	$3,630
		Recovery of inventory loss		$3,630
	Allowance to reduce inventory to NRV =   Inventory at cost - Inventory at NRV
		$349,780 - $326,730
		$23,050
Ans. C	Both methods will provide the same net income as both are providing the same results.