Question

Tamarisk 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 Tamarisk, has gathered the following data concerning inventory.

At May 31, 2020, the balance in Tamarisk’s Raw Materials Inventory account was $424,320, and Allowance to Reduce Inventory to NRV had a credit balance of $27,440. 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 Tamarisk’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		$72,800		$66,560		$58,240
Cedar shake siding		89,440		97,760		88,192
Louvered glass doors		116,480		193,856		175,032
Thermal windows		145,600		160,992		145,600
Total		$424,320		$519,168		$467,064

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

Balance in the Allowance to Reduce Inventory to NRV

$

For the fiscal year ended May 31, 2020, 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

1)

Particulars	Cost	Net Realizable value	LCM
Aluminium siding	72,800	58,240	58,240
Cedar shake siding	89,440	88,192	88,192
Louvered glass doors	116,480	175,032	116,480
Thermal windows	145,600	145,600	145,600
Total	424,320	467,064	408,512

2)

Inventory cost	$424,320
Less: LCM	$408,512
Allowance on may	$15,808

Particulars	Amount
Balance exist before adjustment	$27,440
Less: required balance	$15,808
Gain to be recorded	$11,632

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