Garcia Home Improvement plc 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, 2019. Jim Alcide, controller for Garcia, has gathered the following data concerning inventory. At May 31, 2019, the balance in Garcia's Raw Materials Inventory account was $408,000, and Allowance to Reduce Inventory to NRN had a credit balance of $27,500. Alcide summarized the relevant inventory cost and market data at May 31, 2019, in the schedule below. Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that shoukd share on Garcia's May 31, 2019, 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 $ 70,000 $64,000 $56,000 Cedar shake siding 86,000 94,000 84,800 Louvered glass doors 112,000 186,400 168,300 Thermal windows 140,000 154,800 140,000 Total $408,000 $499,200 $449,100 Instructions a. Determine the proper balance in Allowance to Reduce Inventory to Net Realizable Value at May 31, 2019 For the fiscal year ended May 31, 2019, determine the amount of the gain or loss that would be recorded (using the loss method) due to the change in Allowance to Reduce Inventory to Net Realizable Value. b. Explain the rational for the use of the LCNRV rule as it applies to inventories.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

100%

Garcia Home Improvement plc 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, 2019. Jim Alcide, controller for Garcia, has gathered the following data concerning inventory.

At May 31, 2019, the balance in Garcia's Raw Materials Inventory account was $408,000, and Allowance to Reduce Inventory to NRN had a credit balance of $27,500. Alcide summarized the relevant inventory cost and market data at May 31, 2019, in the schedule below.

Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that shoukd share on Garcia's May 31, 2019, 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	$ 70,000	$64,000	$56,000
Cedar shake siding	86,000	94,000	84,800
Louvered glass doors	112,000	186,400	168,300
Thermal windows	140,000	154,800	140,000
Total	$408,000	$499,200	$449,100

Instructions

Determine the proper balance in Allowance to Reduce Inventory to Net Realizable Value at May 31, 2019
For the fiscal year ended May 31, 2019, determine the amount of the gain or loss that would be recorded (using the loss method) due to the change in Allowance to Reduce Inventory to Net Realizable Value.

b. Explain the rational for the use of the LCNRV rule as it applies to inventories.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 3 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Financial Reporting in Hyperinflationary Economies

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions