At the end of 20X2, Rontu Inc. has four inventory items, two of which management believes should be written down. The cost and estimated NRVs of the items are as follows:

Required:
1. Determine the amount by which the inventory should be written down if lower- of- cost- or- NRV valuation is applied item- by- item. Prepare the journal entry to record the write-down.
2. Items A and B are related, while Items C and D are related. Determine the inventory write-down if lower- of- cost- or- NRV valuation is applied by category. Prepare the journal entry to establish an inventory allowance.
3. Suppose that in 20X3, the NRV of Item A rises to $ 90 by the end of the year. Prepare journal entries to record the recovery in value, if feasible, under each of the two methods.
4. Explain the advantages and disadvantages of using an allowance instead of direct write-down.

Transcribed Image Text:

Per Unit NRV Quantity Cost $85 $80 ltem A ltem B Item C Item D 100 260 150 200 40 70 50 45 50 60