Question

QW EP Garda Home Improvement Company installs replacement siding, windows, and louvered 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, 2020, and Jim Alcide, controller for Garcia, has gathered the following data concerning inventory At May 31, 2020, the balance in Garcia's Raw Material Inventory account was $276,500 and the Allowance to Reduce Inventory to NRV had a credit balance of $11,700 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 Garcia's May 31, 2020, 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. Aluminum siding Cedar shake siding Louvered glass doors Thermal windows Cost $33,000 89.500 115,000 39,000 $276,500 Replacement Cost $32,500 79.400 124.000 26,000 $281,900 Sales Price $34,000 94,000 186,400 54,800 $360,200 NetRearane Value Value $24.000 83,800 160,300 38.000 $308,100 Normal Profit $2,100 7.400 18,500 5.400 $33,400 Total Instructions: (1) Determine the proper balance in the Allowance to Reduce Inventory to NRV at May 31, 2020. Calculations of Proper Balance on the Allowance to Reduce Inventory to NRV At May 31, 2020 LCNRY Aluminum siding Cedar Shake siding Louvered clase Thermal Windows glass doors Inventory cost LCNRV valuation

Answer 1

Garcia Home Improvement Company

1.

	Cost	NRV	LCNRV
Aluminium sliding	33000	24000	24000
Cedar shake siding	89500	83800	83800
Louvered glass doors	115000	160300	115000
Thermal windows	39000	38000	38000
Total	276500	306100	260800
Inventory cost			276500
LCNRV valuation			260800
Allowance at May 31, 2020			15700

2.

Balance prior to adjustment			11700
Less: Required balance			15700
Loss to be recorded			4000
Journal entry:
Loss on inventory write-down		4000
Allowance to Reduce Inventory to NRV			4000

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