E9.

10 (LO 2) (Relative Standalone Sales Value Method) During 2022, Crawford

Furniture purchases a carload of wicker chairs. The manufacturer sells the
chairs to Crawford for a lump sum of £60,000 because it is discontinuing
manufacturing operations and wishes to dispose of its entire stock. Three
types of chairs are included in the carload. The three types and the estimated
selling price for each are listed below.
Type No. of Estimated Selling Price Each
Chairs
Lounge chairs 400 £90
Armchairs 300 80
Straight 800 50
chairs
During 2022, Crawford sells 200 lounge chairs, 100 armchairs, and 120
straight chairs.
Instructions
What is the amount of gross profit realized during 2022? What is the amount
of inventory of unsold straight chairs on December 31, 2022?
P9.2 (LO 1)   (LCNRV) Garcia Home Improvement plc 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,
2022. Jim Alcide, controller for Garcia, has gathered the following data
concerning inventory.
At May 31, 2022, the balance in Garcia’s Raw Materials Inventory account was
£408,000, and Allowance to Reduce Inventory to NRV had a credit balance of
£27,500. Alcide summarized the relevant inventory cost and market data at
May 31, 2022, 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, 2022, 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 £70,000 £64,000 £56,000
Cedar shake siding 86,000 94,000 84,800
Louvered glass 112,000 186,400 168,300
doors
Thermal windows 140,000 154,800 140,000
Total £408,000 £499,200 £449,100
Instructions
1.
1. Determine the proper balance in Allowance to Reduce Inventory
to Net Realizable Value at May 31, 2022.
2. For the fiscal year ended May 31, 2022, 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 Net
Realizable Value.
2. Explain the rationale for the use of the LCNRV rule as it applies to
inventories.