Assume the inventory that existed at the end of each year was sold in the subsequent year. Prepare journal entries to record the lower of cost or market for each of the following alternatives. a. allowance method, perpetual inventory system b. direct method, perpetual inventory system

Explain any differences in inventory valuation and income between the two methods.

The following are the inventories for the years 2016, 2017, and 2018 for Parry Company: Cost Market January 1, 2016 $50,000 $50,000 December 31, 2016 64,000 60,000 December 31, 2017 71,000 70,000 December 31, 2018 75,000 78,000 Required: 1. Assume the inventory that existed at the end of each year was sold in the subsequent year. Prepare journal entries to record the lower of cost or market for each of the following alternatives. a. allowance method, perpetual inventory system b. direct method, perpetual inventory system 2. Next Level Explain any differences in inventory valuation and income between the two methods. Assume Parry uses the allowance method and a perpetual inventory system. Prepare the necessary journal entries to record: 1. the correct inventory valuation on December 31, 2016 2. the reduction in inventory when the inventory from December 31, 2016 is sold during 2017 Additional Instructions 3. the correct inventory valuation on December 31, 2017 4. the reduction in inventory when the inventory from December 31, 2017 is sold during 2018 Additional Instructions 3. the correct inventory valuation on December 31, 2018 (if necessary) PAGE 9 GENERAL JOURNAL DATE 1 2 ACCOUNT TITLE POST. REF. DEBIT CREDIT DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT 3 4 5 6 7 8 9 10 Assume Parry uses the direct method and a perpetual inventory system. Prepare the necessary journal entries to record: 1. the correct inventory valuation on December 31, 2016 2. the reduction in inventory when the inventory from December 31, 2016 is sold during 2017 Additional Instructions 3. the correct inventory valuation on December 31, 2017 4. the reduction in inventory when the inventory from December 31, 2017 is sold during 2018 Additional Instructions 3. the correct inventory valuation on December 31, 2018 (if necessary) PAGE 9 GENERAL JOURNAL DATE 1 2 3 4 5 6 7 8 ACCOUNT TITLE POST. REF. DEBIT CREDIT Enter the effect on income with the write down of inventory at December 31 each year under each method. Effect on Income December 31, 2016 December 31, 2017 December 31, 2018 Periodic Perpetual $ $ $ $ $ $ Enter the value of inventory at December 31 each year under each method. Inventory valuation December 31, 2016 December 31, 2017 December 31, 2018 Periodic Perpetual $ $ $ $ $