Inventory Write-Down

Instructions

Chart of Accounts

General Journal

Next Level

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Instructions

The inventories of Berry Company for the years 2019 and 2020 are as follows:

	Cost	NRV
January 1, 2019	$10,000	$10,000
December 31, 2019	14,000	11,500
December 31, 2020	16,000	14,500

Berry uses a perpetual inventory system and the FIFO inventory cost flow assumption.

Required:

1.

Assume the inventory that existed at the end of 2019 was sold in 2020. 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 Explain any differences in inventory valuation and income between the two methods.

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General Journal

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1a. Assume Berry uses the direct method.

Prepare the necessary journal entries to record:

	1. the correct inventory valuation on December 31, 2019
	2. the reduction in inventory when the inventory from December 31, 2019 is sold during 2020
	3. the correct inventory valuation on December 31, 2020

General Journal Instructions

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GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
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1b. Assume Berry uses the allowance method.

Prepare the necessary journal entries to record:

	1. the correct inventory valuation on December 31, 2019
	2. the reduction in inventory when the inventory from December 31, 2019 is sold during 2020
	3. the correct inventory valuation on December 31, 2020

General Journal Instructions

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GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
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2. Complete the statements below that explain any differences in inventory valuation and income between the two methods.

The two methods produce the same net inventory valuations and have the same effects on net income. At the end of 2020, inventory would be valued at ......... under the direct method and.................. under the allowance method. Income would be reduced by.............. after the entry to reduce inventory to market under the direct method and after the entry to reduce inventory to market under the allowance method.