Question

Wildhorse Corporation had the following items in inventory as at December 31, 2020:

Item No.			Quantity			Unit Cost			NRV
	A1		135			$2.70			$5.70
	B4		190			2.50			2.45
	C2		110			7.65			8.80
	D3		130			7.90			7.45

Assume that Wildhorse uses a perpetual inventory system, and that none of the inventory items can be grouped together for accounting purposes.

Prepare the year-end adjusting entry required to adjust to the lower of cost or net realizable value on an item-by-item basis using the direct method. (Credit account titles are automatically indented when the 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
December 31, 2020

  

  

Prepare the year-end adjusting entry required to adjust to the lower of cost or net realizable value on an item-by-item basis using the indirect method. (Credit account titles are automatically indented when the 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
December 31, 2020

Answer 1

Item No.			Quantity			Unit Cost			NRV		Write down
	A1		135			$2.70			$5.70		0
	B4		190			2.50			2.45		9.5
	C2		110			7.65			8.80		0
	D3		130			7.90			7.45		58.5
	Total										68

Adjusting entry : Direct method

No	General Journal	Debit	Credit
	Cost of goods sold	68
	Inventory		68
	(To record adjusting entry)

Adjusting entry : Indirect method

No	General Journal	Debit	Credit
	Loss on inventory	68
	Allowance on Inventory		68
	(To record adjusting entry)