Question

The inventories of Berry Company for the years 2016 and 2017 are as follows:

	Cost	Market
January 1, 2016	$10,000	$10,000
December 31, 2016	13,000	11,500
December 31, 2017	15,000	14,000

Berry uses the periodic inventory method.

Required:

1.

Assume the inventory that existed at the end of 2016 was sold in 2017. Prepare the necessary journal entries at the end of each year to record the correct inventory valuation if Berry uses the:

	a. direct method
	b. allowance method

2.

Next Level Refer to your answer for E8-4. How does the use of a periodic or perpetual inventory system affect the valuation of inventory?

Answer 1

Journal Entry- Direct Method
Date	Account Tittle	Debit	Credit
12/31/2016	Cost of Goods Sold	1500
	Inventory (13000-11500)		1500
	TO Record reduce inventory Value
12/31/2017	Cost of Goods Sold	1000
	Inventory (15000-14000)		1000
	TO Record reduce inventory Value
Journal Entry- allowance Method
Date	Account Tittle	Debit	Credit
12/31/2016	Loss due to decline market Value	1500
	Allowance to reduce Inventory to Market		1500
	TO Record reduce inventory Value
12/31/2017	Loss due to decline market Value	1000
	Allowance to reduce Inventory to Market		1000
	TO Record reduce inventory Value

The two methods produce the same net inventory valuations and have same effects on the net Income