At the End of the First Year of a Firm's

Essay

At the end of the first year of a firm's operations,the total inventory at cost was $200 and the market value (for purposes of Lower of Cost or NRV valuation) was $220.The corresponding values at the end of years 2 and 3 are as follows: $$\begin{array} { l l l } & \text { Year 2 } & \text { Year 3 } \\\hline \text { Cost } & \$ 400 & \$ 600 \\\hline \text { Market } & 340 & 640\end{array}$$ Required: provide the adjusting entries at the end of years 2 and 3 to record inventory at Lower of Cost or NRV using:
(a) the direct reduction method,and
(b) the inventory allowance method.