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Crane Company began operations in 2020 and determined its ending inventory at cost and at LCNRV at December 31, 2020, and December 31, 2021. This information is presented below. Cost Net Realizable Value 12/31/20 $354,700 $331,550 12/31/21 413,510 394,540 (a) Prepare the journal entries required at December 31, 2020, and December 31, 2021, assuming inventory is recorded at LCNRV and a perpetual inventory system using the cost-of-goods-sold method.

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Answer and Explanation:

a. The journal entries are shown below

Cost of goods sold ($354,700 - $331,550) $23,150

        To Allowance for reduction in inventory to NRV $23,150

(Being allowance for reduction is recorded)

Allowance for reduction in inventory to NRV ($23,150 - ($413,510 - $394,540)) $4,180

           To Cost of good sold $4,180

(being recording of the previous loss)

These two entries should be recorded at LCNRV method

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