Exercise 9-4 Grouper Company began operations in 2017 and determined its ending

Question

Exercise 9-4

Grouper 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.

(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.)

(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.)

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

A: Both Methods have the same effect

B: Cost-of-goods-sold method

C: Loss Method

Also attached is the list of accounts

Accounts Payable
Adjustment to Record Inventory at Cost
Allowance to Reduce Inventory to Market
Allowance to Reduce Inventory to NRV
Biological Assets - Shearing Sheep
Cash
Cost of Goods Sold
Estimated Liability on Purchase Commitments
Inventory
Inventory Over and Short
Loss Due to Decline of Inventory to NRV
Loss Due to Market Decline of Inventory
Notes Payable
Purchases
Raw Materials
Recovery of Loss Due to Market Decline of Inventory
Recovery of Loss Inventory
Salaries and Wages Expense
Sales Revenue
Unrealized Holding Gain or Loss - Equity
Unrealized Holding Gain or Loss - Income
Wool Inventory

Cost Net Realizable Value 12/31/17 $341,860 $318,330 12/31/18 $376,520 $357,230

Explanation / Answer

(a).

Date

Accounts Title & Explanation

Debit

Credit

12/31/17

Cost of goods sold ($341860 - $318330)

$23530

     Allowance to Reduce Inventory to NRV

$23530

(For adjusting value of inventory as per LCNRV)

12/31/18

Allowance to Reduce Inventory to NRV

$4240

      Cost of goods sold [$23530 – ($376520 - $357230)]

$4240

(For adjusting value of inventory as per LCNRV)

(b).

Date

Accounts Title & Explanation

Debit

Credit

12/31/17

Loss Due to Decline of Inventory to NRV

$23530

     Allowance to Reduce Inventory to NRV

$23530

(For recording loss due to decline of inventory to NRV)

12/31/18

Allowance to Reduce Inventory to NRV

$4240

      Recovery of Loss Inventory

$4240

(For recording recovery of loss inventory)

(c).

Answer is option (A) Both Methods have the same effect

Explanation;

As we have seen in part (a) and part (b) that both method shows same effect.

Date

Accounts Title & Explanation

Debit

Credit

12/31/17

Cost of goods sold ($341860 - $318330)

$23530

     Allowance to Reduce Inventory to NRV

$23530

(For adjusting value of inventory as per LCNRV)

12/31/18

Allowance to Reduce Inventory to NRV

$4240

      Cost of goods sold [$23530 – ($376520 - $357230)]

$4240

(For adjusting value of inventory as per LCNRV)

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