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) |
$ |
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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