Sweet Acacia uses LIFO inventory costing. At January 1, 2020, inventory was $334,640 at both cost and market value. At December 31, 2020, the inventory was $425,820 at cost and $400,440 at market value. Prepare the necessary December 31 entry under (a) the cost-of-goods-sold method and (b) loss method. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

January 1, 2020, inventory was $334,640 at both cost and market value.

December 31, 2020, the inventory was $425,820 at cost and $400,440 at market value.

When using lower of cost or market value, we must record our inventory at whichever is lower. The total loss of inventory value = $425,820 - $400,440 = $25,380.

a) the cost-of-goods-sold method

December 31, adjustments to record loss on inventory's market value.

Dr Cost of goods sold 25,380

    Cr Inventory* 25,380

b) loss method

December 31, adjustments to record loss on inventory's market value.

Dr Loss due to decline of inventory to market value 25,380

    Cr Inventory* 25,380

*Depending on what account you are told to use (instead of inventory account) you might be required to use the Allowance to reduce inventory to market value account.

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