Referring to the situation in P9.2 for Garcia Home Improvement Company, consider the following expanded data at May 31, 2020. Assume Garcia uses LIFO inventory costing.

Instructions

a. 1. Determine the proper balance in Allowance to Reduce Inventory to Market at May 31, 2020.

2. For the fiscal year ended May 31, 2020, determine the amount of the gain or loss that would be recorded due to the change in Allowance to Reduce Inventory to Market. Prior to adjustment, the Allowance account had a balance of $27,500.

b. Explain the rationale for the use of the lower-of-cost-or-market rule as it applies to inventories.

Transcribed Image Text:

Sales Price Net Realizable Value Replacement Normal Profit Cost Cost Aluminum siding Cedar shake siding Louvered glass doors Thermal windows $ 70,000 $ 64,000 $ 56,000 $ 5,100 $ 62,500 7,400 86,000 79,400 94,000 84,800 112,000 124,000 186,400 168,300 18,500 15,400 140,000 126,000 154,800 140,000 Total $449,100 $408,000 $391,900 $499,200 $46,400