Can someone please answer this problem for me? its from kieso weygandt and warfield Intermediate Accounting 14th edition chapter 9 problem 2.Garcia Home Improvement Company installs replacement siding, windows, and lovered 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, 2012, and Jim Alcide, controller for Garcia, has gathered the following data concerning inventory.
At May 31, 2012 the balance in Garcia's Raw Materials Inventory account was $408,000, and the Allowance to Reduce Inventory to Market had a credit balance of $27,500. Alcide summarized the relevant inventory cost and market data at May 31, 2012 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 2012 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 cost principle.
Aluminum siding: cost=70,000, replacement cost=62,500, sales price=64,000,net realizable value=56,000,normal profit=5,100 cedar shake siding: cost=86,000,replacemnt cost=79,400,sales price=94,000,net realizable value=84,800,normal profit=7,400 louvered glass door:cost=112,000, replacement cost=124,000, sales price=186,400, net realizable value=168,300, profit=18,500 thermal windows: cost=140,000, replacement cost=126,000, sales price=154,800, net realizable value=140,000,net profit=15,400 totals: cost=408,000 replaement cost=391,900 sales price=499,200 net realizable value=449,100 normal profit=46,400
a) 1. determine the proper balanc e in the Allowance to Reduce Inventory to Market at May 31, 2012.
2. for the fiscal year ended May 31, 2012 determine the amount of the gain or loss that would be recorded due to the change in the Allowance to Reduct Inventory to Market.
b) explain tHe rationale for the use of the lower-of-cost-or-market rule as it applies to inventories.