he J. Love Company uses a periodic inventory accounting system and values its inventory by using the lower of cost or NRV rule. The allowance method is used in applying the lower of cost or NRV rule. The company adjusts and closes its books annually on December 31. Below are the cost and market values of the company's year-end inventories for a three-year period: Date Cost Market December 31, 2018 $70,000 $70,000 December 31, 2019 56,000 46,000 December 31, 2020 64,000 58,000 Refer to Exhibit 8-3. Which of the following journal entries would be correct as of December 31, 2020, to apply the lower of cost or market rule? a. Inventory 58,000       Income Summary     58,000 b. Allowance to Reduce Inventory to NRV 4,000       Loss Recovery Due to Write-Down of Inventory     4,000 c. Loss Due to Write-Down of Inventory 6,000       Allowance to Reduce Inventory to NRV     6,000 d. Cost of Goods Sold 6,000       Allowance to Reduce Inventory to NRV     6,000

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.