Question

Garcia Home Improvement Company installs replacement siding, windows, and louvred glass doors for single-family homes and condominium complexes in northern New Jersey and southern New York. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2019, and Jim Alcide, a controller for Garcia, has gathered the following data concerning inventory.

At May 31, 2019, the balance in Garcia’s Raw Material Inventory account was $268,000

and the Allowance to Reduce Inventory to NRV had a credit balance of $10,700

Alcide summarized the relevant inventory cost and market data on May 31, 2019, in the schedule below.

Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that should appear on Garcia’s May 31, 2019, financial statements for inventory under the lower-of-cost-or-NRV rule as applied to each item in inventory. Devereaux expressed concern over departing from the cost principle.

		Cost	Replacement Cost	Sales Price	Net Realizable Value	Normal Profit
Aluminum siding		$34,000	$32,500	$34,000	$26,000	$2,100
Cedar shake siding		89,000	79,400	94,000	83,800	7,400
Louvered glass doors		105,000	124,000	186,400	160,300	18,500
Thermal windows		40,000	26,000	54,800	38,000	5,400
Total		$268,000	$261,900	$369,200	$308,100	$33,400

Instructions:
(1) Determine the proper balance in the Allowance to Reduce Inventory to NRV at May 31, 2019.
Calculations of Proper Balance on the Allowance to Reduce Inventory to NRV At May 31, 2019.
		COST	NRV	LCNRV
	Aluminum siding
	Cedar shake siding
	Louvred glass doors
	Thermal windows
	Totals
	Inventory cost
	LCNRV valuation
	Allowance on May 31, 2019
(2) For the fiscal year ended May 31, 2019, determine the amount of the gain or loss that would be recorded due to the change in the Allowance to Reduce Inventory to NRV. Record the journal entry.
	Balance prior to adjustment
	Less: Required balance
	Loss to be recorded
	journal entry

Answer 1