As a result of its annual inventory count, Tarweed Corp. determined its ending inventory at cost and at lower of cost and net realizable value at December 31, 2019, and December 31, 2020. December 31, 2019, was Tarweed?s first year end. This information is as follows:

Instructions

a. Prepare the journal entries required at December 31, 2019 and 2020, assuming that the inventory is recorded directly at the lower of cost and net realizable value and a periodic inventory system is used.

b. Prepare the journal entries required at December 31, 2019 and 2020, assuming that the inventory is recorded at cost and an allowance account is adjusted at each year end under a periodic system.

c. Which of the two methods above provides the higher net income in each year?

Transcribed Image Text:

Lower of Cost and NRV Cost Dec. 31, 2019 Dec. 31, 2020 $321,000 $283,250 351,250