Question

Flint 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 Flint, has gathered the following data concerning inventory.

At May 31, 2020, the balance in Flint’s Raw Materials Inventory account was $477,360, and Allowance to Reduce Inventory to Market had a credit balance of $29,030. 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 Flint’s May 31, 2020, financial statements for inventory at lower-of-cost-or-market as applied to each item in inventory. Devereaux expressed concern over departing from the historical cost principle. Assume Garcia uses LIFO inventory costing.

Replacement Cost		Cost	Sales Price			Net Realizable Value			Normal Profit
Aluminum siding		$81,900		$73,125			$74,880			$65,520			$5,967
Cedar shake siding		100,620		92,898			109,980			99,216			8,658
Louvered glass doors		131,040		145,080			218,088			196,911			21,645
Thermal windows		163,800		147,420			181,116			163,800			18,018
Total		$477,360		$458,523			$584,064			$525,447			$54,288

(a1) Determine the proper balance in Allowance to Reduce Inventory to Market at May 31, 2020.

Balance in the Allowance to Reduce Inventory to Market

$

(a2) For the fiscal year ended May 31, 2020, determine the amount of the gain or loss that would be recorded due to the change in Allowance to Reduce Inventory to Market.

The amount of the gain (loss)

$

Answer 1

Solution:

Particulars	Cost	replacement cost	Sales price	net realizable value	Normal profit	LCM
Aluminium siding	$81,900	$73,125	$74,880	$65,520	$59,553 ($65,520 -$5,967)	$65,520
Cedar shake siding	$100,620	$92,898	$109,980	$99,216	$90,558 ($99,216 -$8,658)	$92,898
Louvered glass door	$131,040	$145,080	$218,088	$196,911	$175,266 ($196,911 -$21,645)	$131,040
Thermal windows	$163,800	$147,420	$181,116	$163,800	$145,782 ($163,800-$18,018)	$147,420
Total	$477,360	$458,523	$584,064	$525,447	$471,159 ($525,447 -$54,288)	$436,878

1a)

Particulars	Amount
Inventory cost	$477,360
Less: LCM valuation	($436,878)
Allowance at the end of 31 may 2020	$40,482

1b)

Particulars	Amount
Balance prior to adjustment	$29,030
Less: required balance	($40,482)
Change in allowance to reduce inventory to market loss amount	($11,452)

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