Cost Sales Price Net Realizable Value (a) Novak Home Improvement Company install
ID: 2548907 • Letter: C
Question
Cost
Sales Price
Net Realizable Value
(a)
Novak 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 Novak, has gathered the following data concerning inventory.At May 31, 2017, the balance in Novak’s Raw Materials Inventory account was $473,280, and Allowance to Reduce Inventory to NRV had a credit balance of $27,490. 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 Novak’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 $81,200 $74,240 $64,960 Cedar shake siding 99,760 109,040 98,368 Louvered glass doors 129,920 216,224 195,228 Thermal windows 162,400 179,568 162,400 Total $473,280 $579,072 $520,956Explanation / Answer
(a) Solution :- Balance in the allowance to reduce inventory to NRV is $17,632
The balance in the allowance to reduce the inventory to NRV at May 31, 2017 is $17,632 for which the calculations are done below:-
Inventory Cost $473,280
Less:- Lower for cost or Net realisable value evaluation ($455,648)
Allowance at May 31, 2017 $17,632
Particulars cost Net Realisable Value Lower of cost or Net realisable value Aluminium siding $81200 $64,960 $64,960 Cedar shake siding $99,760 $98,368 $98368 Louversed glass doors $129,920 $195,228 $129,920 Thermal windows $162,400 $162,400 $162,400 Total $473,280 $520,956 $455,648