Problem 9-2 Cost Sales Price Net Realizable Value Determine the proper balance i
ID: 2515539 • Letter: P
Question
Problem 9-2
Cost
Sales Price
Net Realizable Value
Determine the proper balance in Allowance to Reduce Inventory to NRV at May 31, 2017.
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.
Problem 9-2
Coronado 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 Coronado, has gathered the following data concerning inventory.At May 31, 2017, the balance in Coronado’s Raw Materials Inventory account was $428,400, and Allowance to Reduce Inventory to NRV had a credit balance of $27,450. 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 Coronado’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 $73,500 $67,200 $58,800 Cedar shake siding 90,300 98,700 89,040 Louvered glass doors 117,600 195,720 176,715 Thermal windows 147,000 162,540 147,000 Total $428,400 $524,160 $471,555Explanation / Answer
Answer
Balance in Allowance to Reduce Inventory to NRV at May 31, 2017
= Total cost of Inventory - Total of LCNRV = $428,400 - $412,440 =$15,960
Amount of the gain or loss due to the change in Allowance to Reduce Inventory to NRV.
= Balance in Allowance to Reduce Inventory to NRV prior to addjutment - Balance in Allowance to Reduce Inventory to NRV after addjutment = $27,450 - $15,960 =$11,490 Gain
Cost ($) Net Realizable Value($) LCNRV ($) Aluminum siding 73,500 58,800 58,800 Cedar shake siding 90,300 89,040 89,040 Louvered glass doors 117,600 176,715 117,600 Thermal windows 147,000 147,000 147,000 Total $428,400 $471,555 $412,440Related Questions
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