Determine the proper balance in Allowance to Reduce Inventory to NRV at May 31, 2017.
Balance in the Allowance to Reduce Inventory to NRV
Ivanhoe 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 Ivanhoe, has gathered the following data concerning inventory.
At May 31, 2017, the balance in Ivanhoe's Raw Materials Inventory account was $444,720, and Allowance to Reduce Inventory to NRV had a credit balance of $27,340. 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 Ivanhoe'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 |
$76,300 |
$69,760 |
$61,040 |
| Cedar shake siding |
93,740 |
102,460 |
92,432 |
| Louvered glass doors |
122,080 |
203,176 |
183,447 |
| Thermal windows |
152,600 |
168,732 |
152,600 |
| Total |
$444,720 |
$544,128 |
$489,519
|
Determine the proper balance in Allowance to Reduce Inventory to NRV at May 31, 2017.