Question 2

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

a. 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	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9
10

b. 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	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8