Question 1 Blue Home Improvement Company installs replacement siding, windows, a

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Question 1 Blue 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, 2017. Jim Alcide, controller for Blue, has gathered the following data concerning inventory At May 31, 2017, the balance in Blue's Raw Materials Inventory account was $412,080, and Allowance to Reduce Inventory to NRV had a credit balance of $27,470. Alcide summarized the relevant inventory cost and market data at May 31, 2017, in the schedule below. Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that should appear on Blue's May 31, 2017, 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 Aluminum siding Cedar shake siding Louvered glass doors Thermal windows Cost $70,700 86,860 113,120 141,400 $412,080 Sales Price $64,640 94,940 188,264 156,348 $504,192 Net Realizable Value $56,560 85,648 169,983 141,400 $453,591 Total Determine the proper balance in Allowance to Reduce Inventory to NRV at May 31, 2017 Balance in the Allowance to Reduce Inventory to NRV For the fiscal year ended May 31, 2017, 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 NRV. (Enter loss using either a negative sign preceding the number e.g.-45 or parentheses e.g. (45).) The amount of the gain (loss)

Explanation / Answer

Valuation of Inventory on the basis of LCNRV rule on each item of Inventory

Balance in Allowance to reduce Inventory to NRV at May ,2017 =

Opening Credit Balance + ( Cost of Inventory - Value of inventory as per LNRV rule)

= $27,470 + ($412,080 - $ 396,728) = $42,822   

Amount of Gain (loss) due to change in Balance in Allowance to reduce Inventory to NRV at May ,2017

= Opening Credit Balance - Closing Credit Balance = $27,470 - $42,822 = $15,352

items Cost ($) NRV ($) Lower of Cost or NRV Aluminum siding 70,700 56,560 56,560 Cedar shake siding 86,860 85,648 85,648 Louvered glass doors 113,120 169,983 113,120 Thermal windows 141,400 141,400 141,400 Total 412,080 396,728

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