Question

Whispering 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 Whispering, has gathered the following data concerning inventory.

At May 31, 2020, the balance in Whispering’s Raw Materials Inventory account was $424,320, and Allowance to Reduce Inventory to NRV had a credit balance of $27,440. 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 Whispering’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		$72,800		$66,560		$58,240
Cedar shake siding		89,440		97,760		88,192
Louvered glass doors		116,480		193,856		175,032
Thermal windows		145,600		160,992		145,600
Total		$424,320		$519,168		$467,064

(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	$        72,800	$        58,240	$               58,240
Cedar shake siding	$        89,440	$        88,192	$               88,192
Louvered glass doors	$      116,480	$      175,032	$             116,480
Thermal windows	$      145,600	$      145,600	$             145,600
Total	$      424,320	$      467,064	$             408,512
Inventory cost $424320
LCNRV ($408512)
Balance in the allowance to reduce inventory to NRV $15,808