Question

In: Accounting

New attempt is in progress. Some of the new entries may impact the last attempt grading.Your...


New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is incorrect.

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 $436,560, and Allowance to Reduce Inventory to Market had a credit balance of $29,710. 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 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.

Cost

Replacement
Cost

Sales Price

Net Realizable
Value

Normal Profit
Aluminum siding $74,900 $66,875 $68,480 $59,920 $5,457
Cedar shake siding 92,020 84,958 100,580 90,736 7,918
Louvered glass doors 119,840 132,680 199,448 180,081 19,795
Thermal windows 149,800 134,820 165,636 149,800 16,478
      Total $436,560 $419,333 $534,144 $480,537 $49,648


(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)

$

Solutions

Expert Solution

1.

  • Designated market price is the middle value of the replacement cost, NRV and floor
  • Designated market value will compare with cost,The lower of the two amounts will become LCM (lower of cost or market)
Cost Net realizable value(NRV) Replacement cost Normal profit floor(NRV - Normal profit) Designated market price LCM
Aluminium siding 74,900 59,920 66,875 5,457 54,463 59,920 59,920
Cedar shake siding 92,020 90,736 84,958 7,918 82,818 84,958 84,958
louvered glass doors 119,840 180,081 132,680 19,795 160,286 160,286 119,840
Thermal windows 149,800 149,800 134,820 16,478 133,322 134,820 134,820
Total 436,560 480,537 $419,333
49,648		 399,538

Total of LCM= 399,538

Proper balance required in allowance to reduce inventory to market= Total balance in material inventory- Total of LCM=436,560- 399,538=37,022

  • Proper balance required in allowance to reduce inventory to market= 37,022 credit balance

2.

Credit balance in allowance in 31 may 2020= 29,710

Proper credit balance required in allowance to reduce inventory to market=33,022

Required Increase in allowance = 33,022- 29,710= 3,312

loss that would be recorded due to the change in Allowance to Reduce Inventory to Market= 3,312 loss

Dr Cr
Inventory loss 3,312
Allowance to reduce inventory 3,312

ekkarill92 answered 1 year ago
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