Question

Nash 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 Nash, has gathered the following data concerning inventory.

At May 31, 2020, the balance in Nash’s Raw Materials Inventory account was $440,640, and Allowance to Reduce Inventory to NRV had a credit balance of $27,270. 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 Nash’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		$75,600		$69,120		$60,480
Cedar shake siding		92,880		101,520		91,584
Louvered glass doors		120,960		201,312		181,764
Thermal windows		151,200		167,184		151,200
Total		$440,640		$539,136		$485,028

(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

Answer
Determine the balance in the allowance to reduce inventory to NRV
Particulars	Cost	NRV	LCNRV
Aluminium siding	$75,600	$60,480	$60,480
Cedar shake siding	$92,880	$91,584	$91,584
Louvered glass doors	$120,960	$181,764	$120,960
Thermal windows	$151,200	$151,200	$151,200
Total	$440,640	$485,028	$424,224
Inventory cost $440,640
LCNRV ($424,224)
Balance in the allowance to reduce inventory to NRV $16,416