At the end of 20X5, Singh 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 writedown.

2. Items A and B are related, while Items C and D are related. Determine the inventory writedown if lower of cost or NRV valuation is applied by category. Prepare the journal entry to establish an inventory allowance.

3. Suppose that in 20X6, the NRV of Item A rises to $180 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 writedown.

Transcribed Image Text:

Per Unit Quantity Cost NRV Item A 100 $170 $160 Item B 260 80 90 Item C 150 140 100 Item D 200 100 120