On December 31, 2020, Hale Inc. estimated the cost of inventory under the FIFO inventory method to be $100,000 and the net realizable value of inventory to be $95,000. The company had not previously recorded a holding loss on inventory.

a. Prepare the journal entry to record the holding loss on inventory using an allowance account to reduce inventory and cost of goods sold to adjust equity.

b. Prepare the journal entry to record the holding loss on inventory using an allowance account to reduce inventory and a separate loss account to adjust equity.

Account Name Dr. Cr. Cash Accounts Receivable Inventory Allowance to Reduce Inventory to Net Realizable Value Allowance to Reduce Inventory to Market Value Accounts Payable Bonus Payable Estimated Liability on Purchase Commitment Retained Earnings Retained Earnings-Prior Period Adjustment Sales Cost of Goods Sold Compensation Expense Holding Loss on Inventory Estimated Loss on Purchase Commitment N/A