E9-5B (Lower-of-Cost-or-Market—Valuation Account) Presented below is information related to Webby Inc.

E9-5B (Lower-of-Cost-or-Market—Valuation Account) Presented below is information related to Webby Inc.

                                                            Jan. 31               Feb. 28                Mar. 31                Apr. 30

Inventory at cost                                $21,500              $23,000               $19,010               $24,000

Inventory at the lower-of-cost             20,000                20,500                 16,500                 23,100

Purchases for the month                                                 49,000                 43,000                 51,000

Sales for the month                                                         71,000                 76,000                 67,000

Instructions

(a) From the information, prepare (as far as the data permit) monthly income statements in columnar form for February, March, and April. The inventory is to be shown in the statement at cost, the gain or loss due to market fluctuations is to be shown separately, and a valuation account is to be set up for the difference between cost and the lower-of-cost-or-market.

(b) Prepare the journal entry required to establish the valuation account at January 31 and entries to adjust it monthly thereafter.