Central Incorporated has two items in inventory as of December 31 , 2020. Each item was purchased for $40. Company management chose to write down Item 1 to $28, which at year-end was assessed to be its estimated net realizable value. Management did not write down Item 2 because its net realizable value was estimated to be greater than $40. During 2021, it turns out that each item actually sold for $50 cash.
a. Prepare journal entries for each activity (i.e., the write-down, the sale of Item 1, and the sale of Item 2).
b. Compute the profit or loss associated with each item in 2020 and 2021.