Question

Novak Company began operations in 2019 and determined its ending inventory at cost and at lower-of-LIFO cost-or-market at December 31, 2019, and December 31, 2020. This information is presented below: Lower-of-Cost-or- Market $357,400 371,940 Cost $375,880 386,720 12/31/19 12/31/20 (a) Prepare the journal entries required at December 31, 2019, and December 31, 2020, assuming that the inventory is recorded at market, and a perpetual inventory system (cost-of-goods-sold method) is used. (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 12/31/19 Cost of Goods Sold Allowance to Reduce Inventory to Market 12/31/20 Allowance to Reduce Inventory to Market Cost of Goods Sold

Answer 1

Date		Account titles and explanation		Debit(in $)	Credit(in $)
Part A
	Dec 31,2019	Cost of goods sold		18480
		Allowance to Reduce Inventory to market			18480
	Dec 31,2020	Allowance to Reduce Inventory to market($18,480-$14,780)		3700
		Cost of goods sold			3700
Part B
	Dec 31,2019	Loss due to market decline of Inventory		18480
		Allowance to Reduce Inventory to market			18480
	Dec 31,2020	Allowance to Reduce Inventory to market		3700
		Loss due to market decline of Inventory			3700
		Loss method will provide a higher Net Income