Vaughn Home Improvement Company installs replacement siding, windows, and louver
ID: 2562969 • Letter: V
Question
Vaughn 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 Vaughn, has gathered the following data concerning inventory.
At May 31, 2017, the balance in Vaughn’s Raw Materials Inventory account was $481,440, and Allowance to Reduce Inventory to Market had a credit balance of $26,190. 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 Vaughn’s May 31, 2017, financial statements for inventory at lower-of-cost-or-market as applied to each item in inventory. Devereaux expressed concern over departing from the historical cost principle. Assume Garcia uses LIFO inventory costing.
Cost Replacement Cost Sales Price Net Realizable Value Normal Profit
Aluminum siding $82,600 $73,750 $75,520 $66,080 $6,018
Cedar shake siding 101,480 93,692 110,920 100,064 8,732
Louvered glass doors 132,160 146,320 219,952 198,594 21,830
Thermal windows 165,200 148,680 182,664 165,200 18,172
Total $481,440 $462,442 $589,056 $529,938 $54,752
(a1) Determine the proper balance in Allowance to Reduce Inventory to Market at May 31, 2017.
Balance in the Allowance to Reduce Inventory to Market $
(a2) 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.
The amount of the gain (loss) $
Explanation / Answer
(a)
1.
Calculations of Proper Balance on the Allowance to Reduce Inventory to Market At May 31, 2017.
(2) For the fiscal year ended May 31, 2017, the loss that would be recorded due to the change in the Allowance to Reduce Inventory to Market would be $14,368, as calculated below.
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Particulars Cost Replacement cost NRV (celling) NRV less Normal profit (Floor) LCM Aluminum siding 82,600 73,750 66,080 60,062 66,080 Cedar shake siding 101,480 93,962 100,064 91,332 93,962 Louvered glass doors 132,160 146,320 198,594 176,764 132,160 Thermal windows 165,200 148,680 165,200 147,028 148,680 Total 481,440 462,712 529,938 475,186 440,882Related Questions
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