E9-4B (Lower-of-Cost-or-Market—Journal Entries) Yousuf Company began operations in 2013 and determined its ending inventory at cost and at lower-of-cost-or-market at December 31, 2013, and December 31, 2014.

E9-4B (Lower-of-Cost-or-Market—Journal Entries) Yousuf Company began operations in 2013 and determined its ending inventory at cost and at lower-of-cost-or-market at December 31, 2013, and December 31, 2014. This information is presented below.

                          Cost                           Lower-of-Cost-or-Market

12/31/13        $ 865,000                                  $817,500

12/31/14        1,025,000                                    987,500

Instructions

(a) Prepare the journal entries required at December 31, 2013, and December 31, 2014, assuming that the inventory is recorded at market, and that a perpetual inventory system (direct method) is used.

(b) Prepare journal entries required at December 31, 2013, and December 31, 2014, 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?