Problem 9-2 Garcia Home Improvement Company installs replacement siding, windows

Question

Problem 9-2 Garcia Home Improvement Company installs replacement siding, windows, and louvered glass doors for single-family homes and condominium complexes in northern New Jersey and southern New York. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2014, and Jim Alcide, controller for Garcia, has gathered the following data concerning inventory. At May 31, 2014, the balance in Garcia?s Raw Materials Inventory account was $420,240, and Allowance to Reduce Inventory to Market had a credit balance of $26,410. Alcide summarized the relevant inventory cost and market data at May 31, 2014, in the schedule below. Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that should appear on Garcia?s May 31, 2014, financial statements for inventory under the lower-of-cost or-market rule as applied to each item in inventory. Devereaux expressed concern over departing from the historical cost principle. (al) Determine the proper balance in Allowance to Reduce Inventory to Market at May 31, 2014. Balance in the Allowance to Reduce Inventory to Market $ (a2) For the fiscal year ended May 31, 2014, 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 loss $ Click if you would like to Show Work for this question: Open Show Work

Explanation / Answer

In the lower of cost or market rule the allowance in reduced inventory will have value if the market cost is lesser than the cost price and the value is difference of the amount.

Aluminium Sliding: 72100-64375=$7,725

Cedar shake sliding:88580-81782=$6,798

Louvered glass doors:0

Thermal windows:144,200-129,780=14,420

Total allowance=$28,943

1b)the amount of loss is $28,943

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