The inventories of Berry Company for the years 2016 and 2017 are as follows: Cost Market January 1, 2016 $10,000 $10,000 December 31, 2016 13,000 11,500 December 31, 2017 15,000 14,000 Berry uses a perpetual inventory system. Required: 1. Assume the inventory that existed at the end of 2016 was sold in 2017. 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.

CHART OF ACCOUNTS Chapter 8 General Ledger ASSETS 111 Cash 121 Accounts Receivable 131 Inventory 132 Allowance to Reduce Inventory to Market 141 Prepaid Insurance 181 Equipment 189 Accumulated Depreciation LIABILITIES 211 Accounts Payable 221 Salaries Payable 231 Unearned Rent 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings 391 Income Summary REVENUE 411 Sales Revenue EXPENSES 500 Cost of Goods Sold 505 Loss Due to Market Valuation 510 Purchases 531 Salaries Expense 532 Delivery Expense 533 Insurance Expense 534 Utilities Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense

Assume Berry uses the direct method. 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 All transactions on this page must be entered (except for post ref(s)) before you will receive Check My Work feedback.

MY ANSWER:

PAGE 9 GENERAL JOURNAL Score: 50/76

Dec. 31, 2016

Cost of Goods Sold 1,500.00

Inventory 1,500.00

Dec. 31, 2017

Cost of Goods Sold 1,000.00

Inventory 1,000.00

Points: 9.87 / 15

Assume Berry uses the allowance method. 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 All transactions on this page must be entered (except for post ref(s)) before you will receive Check My Work feedback. PAGE 9 GENERAL JOURNAL Score: 44/88

Dec. 31, 2016

Loss Due to Market Valuation 1,500.00

Allowance to Reduce Inventory to Market 1,500.00

Dec. 31, 2017

Allowance to Reduce Inventory to Market 500.00

Loss Due to Market Valuation 500.00

Points: 8.5 / 17

Check My Work: A company can record the write-down of inventory from cost to market value using either of two methods: Direct Method: You should record the loss directly by reducing the companys inventory account and increasing its cost of goods sold account. Allowance Method: You should record the loss in a separate inventory valuation account and a loss account. You should note that under the allowance method, a company would reduce the allowance account when the goods are sold.