Whispering Home Improvement Co
Whispering Home Improvement Company installs replacement siding,windows, and louvered glass doors for single-family homes andcondominium complexes. The company is in the process of preparingits annual financial statements for the fiscal year ended May 31,2020. Jim Alcide, controller for Whispering, has gathered thefollowing data concerning inventory.At May 31, 2020, the balance in Whispering’s Raw MaterialsInventory account was $424,320, and Allowance to Reduce Inventoryto NRV had a credit balance of $27,440. Alcide summarized therelevant inventory cost and market data at May 31, 2020, in theschedule below.Alcide assigned Patricia Devereaux, an intern from a local college,the task of calculating the amount that should appear onWhispering’s May 31, 2020, financial statements for inventory underthe LCNRV rule as applied to each item in inventory. Devereauxexpressed concern over departing from the historical costprinciple.
|
Cost |
Sales Price |
Net Realizable Value |
||||
| Aluminum siding | $72,800 | $66,560 | $58,240 | |||
| Cedar shake siding | 89,440 | 97,760 | 88,192 | |||
| Louvered glass doors | 116,480 | 193,856 | 175,032 | |||
| Thermal windows | 145,600 | 160,992 | 145,600 | |||
| Total | $424,320 | $519,168 | $467,064 |
(a)
Determine the proper balance in Allowance to Reduce Inventory toNRV at May 31, 2020.
| Balance in the Allowance to Reduce Inventory to NRV |
$ |
Answer:
| Answer | |||
|
Determine the balance in the allowance to reduceinventory to NRV |
|||
| Particulars | Cost | NRV | LCNRV |
| Aluminium siding | $ 72,800 | $ 58,240 | $ 58,240 |
| Cedar shake siding | $ 89,440 | $ 88,192 | $ 88,192 |
| Louvered glass doors | $ 116,480 | $ 175,032 | $ 116,480 |
| Thermal windows | $ 145,600 | $ 145,600 | $ 145,600 |
| Total | $ 424,320 | $ 467,064 | $ 408,512 |
| Inventory cost $424320 | |||
| LCNRV ($408512) | |||
| Balance in the allowance to reduce inventory to NRV$15,808 | |||
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