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    Lower-of-Cost-or-Market- Journal Entries & Retail Inventory Method

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    E9-4 (Lower-of-Cost-or-Market?Journal Entries) Corrs Company began operations in 2007 and determined
    its ending inventory at cost and at lower-of-cost-or-market at December 31, 2007, and December
    31, 2008. This information is presented below.

    Cost Lower-of-Cost-or-Market
    12/31/07 $346,000 $327,000
    12/31/08 410,000 395,000

    Instructions
    (a) Prepare the journal entries required at December 31, 2007, and December 31, 2008, assuming
    that the inventory is recorded at market, and a perpetual inventory system (direct method) is
    used.
    (b) Prepare journal entries required at December 31, 2007, and December 31, 2008, assuming that the
    inventory is recorded at cost and an allowance account is adjusted at each year-end under a perpetual
    system.
    (c) Which of the two methods above provides the higher net income in each year?

    E9-20 (Retail Inventory Method) The records of Ellen's Boutique report the following data for the
    month of April.

    Sales $99,000 Purchases (at cost) $48,000
    Sales returns 2,000 Purchases (at sales price) 88,000
    Markups 10,000 Purchase returns (at cost) 2,000
    Markup cancellations 1,500 Purchase returns (at sales price) 3,000
    Markdowns 9,300 Beginning inventory (at cost) 30,000
    Markdown cancellations 2,800 Beginning inventory (at sales price) 46,500
    Freight on purchases 2,400

    Instructions
    Compute the ending inventory by the conventional retail inventory method.

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    Solution Summary

    The solution examines lower of cost or markets for journal entries and retail inventory methods.

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