Question

Part 2: Lower-of-Cost-or-Market Value Assume Garcia uses LIFO inventory costing, and that the Allowance to Reduce Inventory to NRV had a credit balance of $27,500 on May 31, 2017 before adjustment. Net Replacement Cost Realizable Normal Profit Cost Sales Price Value Aluminum siding Cedar shake siding Louvered glass doors Thermal windows Total $ 70,000$ 62,500 79,400 124,000 126,000 84,800 168,300 154,800 140,000 $408,000 391,900 $ 499,200 S 449,100 86,000 112,000 140,000 64,000 S 56,000 S 5,100 7,400 18,500 15,400 46,400 94,000 186,400 (a) Determine the proper balance in Allowance to Reduce Inventory to Market at May 31, 2017 (b) For the fiscal year ended May 31, 2017, determine the amount of the gain or loss that would be recorded due to the change in Allowance to Reduce Inventory to Market.

Answer 1

a)	Item	Cost	Replacement cost	Net realizable value	Net realizable value less normal profit	Designated market value	Lower of cost or market
		1	2	3	4	5	6
						(Mid value of 2,3 & 4)	(Lower of 1 & 5)
	Aluminium siding	70000	62500	56000	50900	56000	56000
	Cedar shake siding	86000	79400	84800	77400	79400	79400
	Louvered glass doors	112000	124000	168300	149800	149800	112000
	Thermal windows	140000	126000	140000	124600	126000	126000
	Total	408000					373400
	Inventory cost	408000
	LCM	373400
	Allowance required	34600
b)	Balance before adjustment	27500
	Allowance required	34600
	Loss to be recorded	7100