Question

Splish Home Improvement Company installs replacement siding, windows, and louvered glass doors for single-family homes and condominium complexes. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2020. Jim Alcide, controller for Splish, has gathered the following data concerning inventory.

At May 31, 2020, the balance in Splish’s Raw Materials Inventory account was $428,400, and Allowance to Reduce Inventory to NRV had a credit balance of $27,450. Alcide summarized the relevant inventory cost and market data at May 31, 2020, in the schedule below.

Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that should appear on Splish’s May 31, 2020, financial statements for inventory under the LCNRV rule as applied to each item in inventory. Devereaux expressed concern over departing from the historical cost principle.

		Cost		Sales Price		Net Realizable Value
Aluminum siding		$73,500		$67,200		$58,800
Cedar shake siding		90,300		98,700		89,040
Louvered glass doors		117,600		195,720		176,715
Thermal windows		147,000		162,540		147,000
Total		$428,400		$524,160		$471,555

(a)

Determine the proper balance in Allowance to Reduce Inventory to NRV at May 31, 2020.

Balance in the Allowance to Reduce Inventory to NRV

$

Answer 1

SOLUTION;

CALCULATION OF PROPER BALANCE IN ALLOWANCE TO REDUCE INVENTORY TO NRV AT MAY 31,2020:

PARTICULARS	COST ($)	NRV($)	LCNRV($) whichever is lower of cost or nrv
ALUMINIUM SIDING	73500	58800	58800
CEADR SHAKE SIDING	90300	89040	89040
LOUVERED GLASS DOORS	117600	176715	117600
THERMAL WINDOWS	147000	147000	147000
TOTAL	428400	471555	412440

Balance in allowance to reduce inventory to NRV=Inventory cost-LCNRV valuation

=428400-412440

=$15960