Question

Blue 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. Cost 12/31/20 $324,730 12/31/21 414,740 Net Realizable Value $299,410 393,550 Prepare the journal entries required at December 31, 2020, and December 31, 2021, assuming that the inventory is recorded at LCNRV and a perpetual inventory system using the cost-of-goods-sold method is used. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter for the amounts.) Debit Credit Date Account Titles and Explanation 12/31/20 12/31/21 e Textbook and Media List of Accounts

Answer 1

The journal entries to be recorded will be:

Part a

Date	Account Titles and Explanation	Debit ($)	Credit ($)	Workings
Dec-20	Cost of goods sold	25320		324730-299410
	Allowance for reduction in inventory to NRV		25320
Dec-21	Allowance for reduction in inventory to NRV	4130
	Cost of goods sold		4130	25320-(414740-393550)

Part b

Date	Account Titles and Explanation	Debit ($)	Credit ($)	Workings
Dec-20	Loss because of decline in inventory to NRV	25320		324730-299410
	Allowance for reduction in inventory to NRV		25320
Dec-21	Allowance for reduction in inventory to NRV	4130
	Recovery of Loss Inventory		4130	25320-(414740-393550)

Part c) Both methods provide the same net income in each year.

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