E9-4 (Lower-of-Cost-or-Market—Journal Entries) Dover Company began operations in 2010 and determined its ending inventory at cost and at lower-of-cost-or-market at December 31, 2010, and December 31, 2011. This information is presented below.
Cost Lower-of-Cost-or-Market
12/31/10 $346,000 $322,000
12/31/11 410,000 390,000
Instructions
(a) Prepare the journal entries required at December 31, 2010, and December 31, 2011, assuming that
the inventory is recorded at lower-of-cost-or-market, and a perpetual inventory system (direct
method) is used.
(b) Prepare journal entries required at December 31, 2010, and December 31, 2011, assuming that the
inventory is recorded at cost and an allowance account is adjusted at each year-end under a perpetual
system.
(c) Which of the two methods above provides the higher net income in each year?
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