Introduction Now that you have learned the basics of using the ASC database, it is time for you to practice actually finding GAAP to answer an accounting question. As an accounting professional, you will use the ASC to help your company or your clients to correctly account for many transactions. In fact, learning how to properly and thoroughly search the ASC database and present your findings is one of the key skills our recruiters want you to learn. The goal of these assignments is to help you practice three key skills: finding the correct GAAP to address a specific problem; interpreting GAAP to make a recommendation; writing up your recommendation with appropriate citations to the ASC. In all of the cases you will take the role of a CPA who has been asked by the Board of Directors of the company in the case to make a formal recommendation on accounting policies and procedures. Remember, the good name of your accounting firm (not to mention your job) will be on the line for every recommendation you make. a Write-Up Read the following case and answer the questions provided. Your answer should be presented as part of a formal recommendation letter to the company's management team. In other words, you should NOT use a traditional homework format, answering each question one by one. Instead, your work should be written as a concise, clear recommendation letter. Your letter should contain a summary of the issue, a discussion of the relevant GAAP,' and a formal recommendation for the company. Your letter should not exceed one page, but may include an additional page of quotes from the ASC if you feel that they would really be beneficial to a client. 'Discuss the GAAP; don't quote it. You may use some short quotes as part of your discussion, but you will not get full credit if you just paste in a large amount of text from the ASC database. That doesn't add any value to your clients, since the last thing they want to do is wade through lots of GAAP. That's what they hired you for! Background Due to an increase in competition, some of the products that PSI, Inc. has in inventory are expected to be sold at a price below cost. While the management team is in agreement that some of the inventory has dropped in value, the finance team is split over how to make the adjustment. The controller wants to apply the lower-of-cost-or-market tests to each of the items in inventory that they believe will drop in value. Since each of the items are sold separately, she believe that this is the most accurate method for determining the total loss in value. 2 The CFO, on the other hand, believes that form of testing will be expensive, and that the incremental information gained from testing individual inventory items would be immaterial. Instead, he suggests that the company evaluate the inventory as a whole. After all, he argues, many of PSI's clients buy multiple products with each order, so the inventory seems to move as a whole instead of as individual lines, even those that are technically sold separately. The original costs and NRV estimates for each product are listed below. Product A B Cost $278,000 $310,000 $235,000 $223,000 NRV $315,000 $310,000 $215,000 $198,000 Questions Answer all of the following questions: How much of an adjustment would the company need to make sure the total inventory method? What about using the individual method? Since an adjustment has to be made, which method would you recommend? What will the journal entry look like for the write down