An electrical distributor reports a 1,400,000 aluminum wire inventory. Due to sluggish new home sales, aluminum wire prices have dropped significantly. The aluminum wire owned by the company now has a net realizable value (NRV) of 900,000. The company uses the allowance method for reporting value adjustments. Which entry would the company make to record the value adjustment to inventory?

1. Debit loss on inventory 500,000, credit allowance to reduce inventory to NRV 500,000

2. Credit loss on inventory 500,000, Debit allowance to reduce inventory to NRV 500,000

3. Debit loss on inventory 500,000, credit inventory 500,000

4. Credit loss on inventory 500,000, credit inventory 500,000