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, 2016, and December 31, 2017. This information is as follows:

Cost Lower of Cost and NRV

Dec. 31, 2016

$321,000 $283,250

Dec. 31, 2017

385,000

351,250

Instructions

(a)

Prepare the journal entries required at December 31, 2016 and 2017, assuming that the inventory is recorded directly at the lower of cost and net realizable value and a periodic inventory system is used. Assume that cost was lower than NRV at December 31, 2015.

(b)

Prepare the journal entries required at December 31, 2016 and 2017, 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?