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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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