Question

Problem 9-2 Ivanhoe 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, 2017. Jim Alcide, controller for Ivanhoe, has gathered the following data concerning inventory. At May 31, 2017, the balance in Ivanhoe’s Raw Materials Inventory account was $416,160, and Allowance to Reduce Inventory to NRV had a credit balance of $27,760. Alcide summarized the relevant inventory cost and market data at May 31, 2017, in the schedule below. Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that should appear on Ivanhoe’s May 31, 2017, 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 $71,400 $65,280 $57,120 Cedar shake siding 87,720 95,880 86,496 Louvered glass doors 114,240 190,128 171,666 Thermal windows 142,800 157,896 142,800 Total $416,160 $509,184 $458,082 Determine the proper balance in Allowance to Reduce Inventory to NRV at May 31, 2017. Balance in the Allowance to Reduce Inventory to NRV $ For the fiscal year ended May 31, 2017, determine the amount of the gain or loss that would be recorded (using the loss method) due to the change in Allowance to Reduce Inventory to NRV. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) The amount of the gain (loss) $

Answer 1

In the below Table NRV is tested individually for each stock item & it is seen that a NRV loss amounts to $15,504
						Item	Cost($)	Sales Price ($)	NRV ($)	Cost or NRV
which ever is lower
Aluminium Sliding	71400	65280	57120	57120
Cedar Shake	87720	95880	86496	86496
Louvered glass doors	114240	190128	171666	114240
Thermal Windows	142800	157896	142800	142800
	4,16,160		4,58,082	400656
Note: Stock is valued at cost or NRV which ever is lower , NRV is Sales price minus Freight & other selling expenses

Allowance to reduce inventory already has a credit balance of $27760 which will get reversed as gain and NRV loss as per above calculation comes to $15504 so there is a net gain booked amounting to $12256