Question

Concord 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 Value Cost 12/31/20 $322,170 $299,520 12/31/21 409,250 390,440 (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 for the amounts.) Date Account Titles and Explanation Debit Credit 12/31/20 12/31/21

Answer 1

While using LCNRV method, on a periodic basis we need to compare the cost of inventory with the net realizable value .

In both years , net realizable value is lower than cost, so an inventory write down has to be recorded for the difference between the cost and its net realizable value.

Date	Account Title and Explanation	Debit $	Credit $
12/31/20	Cost of Goods sold	22,650.00
	Merchandise Inventory		22,650.00
	Inventory write down using perpetual inventory system using cost of goods sold method.
12/31/21	Cost of Goods Sold	18,810
	Merchandise inventory		18,810
	Inventory write down using perpetual inventory system using cost of goods sold method.

Date	Account Title and Explanation	Debit $	Credit $
12/31/20	Inventory write off expense or Allowance for obsolete inventory	22,650.00
	Merchandise Inventory		22,650.00
	Inventory write down using perpetual inventory system using loss method.
12/31/21	Inventory write off expense or Allowance for obsolete inventory	18,810
	Merchandise inventory		18,810
	Inventory write down using perpetual inventory system using loss method.