Referring to the situation in P9.2 for Garcia Home Improvement Company, consider the following expanded data at May 31, 2020. Assume Garcia uses LIFO inventory costing. Cost ReplacementCost SalesPrice Net RealizableValue NormalProfit Aluminum siding $ 70,000 $ 62,500 $ 64,000 $ 56,000 $ 5,100 Cedar shake siding 86,000 79,400 94,000 84,800 7,400 Louvered glass doors 112,000 124,000 186,400 168,300 18,500 Thermal windows 140,000 126,000 154,800 140,000 15,400 Total $408,000 $391,900 $499,200 $449,100 $46,400 Instructions a. 1. Determine the proper balance in Allowance to Reduce Inventory to Market at May 31, 2020. 2. 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. Prior to adjustment, the Allowance account had a balance of $27,500. b. Explain the rationale for the use of the lower-of-cost-or-market rule as it applies to inventories.
Referring to the situation in P9.2 for Garcia Home Improvement Company, consider the following expanded data at May 31, 2020. Assume Garcia uses LIFO inventory costing. Cost ReplacementCost SalesPrice Net RealizableValue NormalProfit Aluminum siding $ 70,000 $ 62,500 $ 64,000 $ 56,000 $ 5,100 Cedar shake siding 86,000 79,400 94,000 84,800 7,400 Louvered glass doors 112,000 124,000 186,400 168,300 18,500 Thermal windows 140,000 126,000 154,800 140,000 15,400 Total $408,000 $391,900 $499,200 $449,100 $46,400 Instructions a. 1. Determine the proper balance in Allowance to Reduce Inventory to Market at May 31, 2020. 2. 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. Prior to adjustment, the Allowance account had a balance of $27,500. b. Explain the rationale for the use of the lower-of-cost-or-market rule as it applies to inventories.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Referring to the situation in P9.2 for Garcia Home Improvement Company, consider the following expanded data at May 31, 2020. Assume Garcia uses LIFO inventory costing.
| Cost | Replacement Cost |
Sales Price |
Net Realizable Value |
Normal Profit |
||||||
| Aluminum siding | $ 70,000 | $ 62,500 | $ 64,000 | $ 56,000 | $ 5,100 | |||||
| Cedar shake siding | 86,000 | 79,400 | 94,000 | 84,800 | 7,400 | |||||
| Louvered glass doors | 112,000 | 124,000 | 186,400 | 168,300 | 18,500 | |||||
| Thermal windows | 140,000 | 126,000 | 154,800 | 140,000 | 15,400 | |||||
| Total | $408,000 | $391,900 | $499,200 | $449,100 | $46,400 |
Instructions
a. 1. Determine the proper balance in Allowance to Reduce Inventory to Market at May 31, 2020.
2. 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. Prior to adjustment, the Allowance account had a balance of $27,500.
b. Explain the rationale for the use of the lower-of-cost-or-market rule as it applies to inventories.
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