Given the Following Information for the Tea Company Under the Periodic System, If the Allowance Method of Recording

question 16

Multiple Choice

Given the following information for the Tea Company:
$\begin{array} { l l l } \underline{\text { Merket }} & \underline{\text { Cost} } & \underline{\text { Dete} } \\\$800 & \$ 800& \text { December 31, 2014 } \\940 & 1,000 & \text { December 31, 2015 } \\1,060 & 1,100 & \text { December 31, 2016 }\end{array}$

Under the periodic system, if the allowance method of recording lower of cost or market is in use, which December 31, 2016 entry is not correct?

• A) Loss Due to Market Valuation 40
• Allowance to Reduce Inventory to Market 40
• B) Allowance to Reduce Inventory to Market 20
• Loss Recovery Due to Market Valuation 20
• C) Inventory 1,100 Income
• Summary 1,100
• D) Income Summary 1,000
• Inventory 1,000

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Definitions:

Contracts

Legal agreements between two or more parties that are enforceable by law, outlining responsibilities, duties, and sharing of benefits.

IRR

Internal Rate of Return; the discount rate that makes the net present value of all cash flows from a particular project zero.

Cash Flow

The net amount of cash and cash-equivalents being transferred into and out of a business.

Project

A temporary endeavor undertaken to create a unique product, service, or result with specific objectives and defined beginning and end.