3. Farmington Company uses a perpetual inventory system and values its inventory at lower of cost or market. Its accounting records indicate the following information relating to inventory: a. b. Inventory Cost Direct method Allowance method Date January 1, 2017 December 31, 2017 December 31, 2018 Required: Prepare the required journal entries at December 31, 2017, and December 31, 2018, to record the inventory at lower of cost or market using the following methods: Market $ 60,000 88,000 104,000 $ 60,000 100,000 115,000

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.