Question

Culver Company began operations in 2017 and determined its ending inventory at cost and at LCNRV at December 31, 2017, and December 31, 2018. This information is presented below.

		Cost		Net Realizable Value
12/31/17		$312,590		$289,500
12/31/18		372,520		353,440

(a) Prepare the journal entries required at December 31, 2017, and December 31, 2018, 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 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
12/31/17
12/31/18

(b) Prepare journal entries required at December 31, 2017, and December 31, 2018, assuming inventory is recorded at cost and a perpetual system using the loss method. (Use Recovery of Loss Inventory account.) (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.)

Date	Account Titles and Explanation	Debit	Credit
12/31/17
12/31/18

(c) Which of the two methods above provides the higher net income in each year?

Answer 1

Answer a Date Debit (9) Credit ($) 12/31/17 Accounts Titles & Explanation Cost of goods sold (312,590-289,500) Allowance to reduce inventory to NRV 23.090 23,090 12/31/18 4,010 Allowance to reduce inventory to NRV Cost of goods sold ($23,090 - ($372,520 - $353,440)] 4,010 Answer b Date Accounts Titles & Explanation Debit (5 23,090 Credit ($) 12/31/17 Loss due to decline of inventory to NRV (312,590-289,500) Allowance to reduce inventory to NRV 23.090 12/31/18 4.010 Allowance to reduce Inventory to NRV Recovery or Inventory Loss [$23,090 - ($372,520 - $353,440)] 4.010 Answer Since, under both methods the adjustment entries shown above will impact the net profit with the same amount. Thus both methods above will provide same net income.