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 $481,440, and Allowance to Reduce Inventory to NRV had a credit balance of $27,240. 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		$82,600		$75,520		$66,080
Cedar shake siding		101,480		110,920		100,064
Louvered glass doors		132,160		219,952		198,594
Thermal windows		165,200		182,664		165,200
Total		$481,440		$589,056		$529,938

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

Balance in the Allowance to Reduce Inventory to NRV

$

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Question Part Score

--/7

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

Proper Balance in Allowance to Reduce Inventory to NRV at May 31,2020
1
	Cost	Net Realisable Value	Lower of Cost Or NRV
Aluminum Siding	82,600	66,080	66,080
Cedar shake Siding	1,01,480	1,00,064	1,00,064
Louvered Glass doors	1,32,160	1,98,594	1,32,160
Thermal Windows	1,65,200	1,65,200	1,65,200
Total	$4,81,440	$5,29,938	$4,63,504
Inventory Cost	$4,81,440
Lower of Cost Or NRV	$4,63,504
Allowance at May 31, 2020	$17,936
2
Amount of Gain/Loss to be recorded
Credit Balance prior to adjustment	$27,240
Required Balance on May 31, 2020	-17,936
Gain recorded due to change in allowance to reduce inventory to NRV	$9304