Not understanding Lower of Cost or market value. How do you journal these entries. The problem is the frost co for the years 2016 & 2017 revel cost and market of the Jan 1, 2016 inventory to be 125,000. On dec 31, 2016 the cost of inventory was 130.000 while market value was 128,000. The Dec. 31, 2017 market value of inventory was 140,000 and the cost was only 135,000. Frost uses a perpetual inventory system.

1. Assume the inventory that existed at the end of 2016 was sold in 2017. Prepare the journal entries at the end of 2016 and 2017 to record the lower of cost or market under the a) allowance method and B) the direct method.