Miller Company began its business on January 1, 20×1.

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Miller Company began its business on January 1, 20×1. Miller presents inventory at the lower-of-cost-or-market (LCM) and uses the allowance method. Information regarding its inventory balances at December 31, 20×1 and 20×2, are given below:

     Cost     Market
Ending inventory 12/31/20×1     $400,000    $395,000
Ending inventory, 12/31/20×2       350,000      347,000

Answer the following questions:

  1.  What account would be debited in the entry to record the cost of ending inventory at 12/31/20×1?
  2.  What account would be credited in the entry to record the cost of ending inventory at 12/31/20×1?
  3.  What is the amount of the debit and credit in (c) and (d)?
  4.   What account would be debited in the entry to establish an “allowance to reduce inventory to market” account at 12/31/20×1.
  5.   What account would be credited in the entry to establish an “allowance to reduce inventory to market” account at 12/31/20×1.
  6.   What is the amount of the debit and credit in (f) and (g)?
  7.     What amount would be debited/credited to the “allowance to reduce inventory to market” account at 12/31/20×2?  Also, specify whether this amount would be debited or credited to “allowance to reduce inventory to market?”
  8.    Where (which category) in a multiple-step income statement would “loss on decline of inventory” appear?

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