Shamrock Home Improvement Company installs replacement siding, windows, and louv

Question

Shamrock 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 Shamrock, has gathered the following data concerning inventory.

At May 31, 2017, the balance in Shamrock’s Raw Materials Inventory account was $456,960, and Allowance to Reduce Inventory to NRV had a credit balance of $27,660. 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 Shamrock’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.

Cost Sales Price Net Realizable Value

Aluminum siding $78,400 $71,680 $62,720

Cedar shake siding 96,320 105,280 94,976

Louvered glass doors 125,440 208,768 188,496

Thermal windows 156,800 173,376 156,800

Total $456,960 $559,104 $502,992

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

a)

Allowance to Reduce Inventory to NRV = $456960 - $439936 = $17024

b) Amount of the Gain/(Loss) = $27660 - $17024 = $10636

Particulars Cost Net Price NRV Reduce to NRV Aluminum Siding $78400 71680 62720 $62720 Cedar shake siding $96320 105280 94976 $94976 Louvered glass doors $125440 208768 188496 $125440 Thermal windows $156800 173376 156800 $156800 Total $456960 $439936

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