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

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

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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