Question

Q7) Pearl 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 Pearl, has gathered the following data concerning inventory.

At May 31, 2020, the balance in Pearl’s Raw Materials Inventory account was $444,720, and Allowance to Reduce Inventory to NRV had a credit balance of $27,340. 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 Pearl’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		$76,300		$69,760		$61,040
Cedar shake siding		93,740		102,460		92,432
Louvered glass doors		122,080		203,176		183,447
Thermal windows		152,600		168,732		152,600
Total		$444,720		$544,128		$489,519

Incorrect answer iconYour answer is incorrect.

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)

$

Answer 1

Qa.Solveing proper balance in Allowance to Reduce Inventory to NRV at May 31, 2020.

Particulars	Cost	NRV	LCNRV
Aluminum siding	76,300	61040	61040
Cedar shake siding	93740	92,432	92,432
Louvered glass doors	122,080	183,447	183,447
Thermal windows	152,600	152,600	152,600
Totals	444,720	489,519	489,519
Inventory cost	444,720
LCM valuation	489,519
proper balance in Allowance to Reduce Inventory to NRV at May 31, 2020. LCM valuation - Inventory cost= 489,519 - 444,720	$44,799

a) $44,799 proper balance in Allowance to Reduce Inventory to NRV at May 31, 2020.

Full form of LCNRV = Lower of cost and NRV.

Qb. 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

Balance prior to adjustment	$27,340
Required balance	$44,799
Gain to be recorded Required balance -Balance prior to adjustment $44,799 - $27,340	$17,459

b) Gain to be recorded = $17,459

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