A construction company owns raw materials inventory that total $408,000 (detail listed below) in the general ledger and has an allowance to reduce inventory to net realizable value (NRV) in the amount of $27,500 (a credit balance) in the general ledger at May 31, 2020, the end of the companys fiscal year.

1. Using the data below, prepare a detailed schedule to determine the proper balance in the allowance to reduce inventory to NRV account at May 31, 2020.

2. Using the attached T-account template, (1) document the balance in the inventory and allowance accounts and (2) prepare the journal entries required, assuming the company uses a perpetual inventory system and the cost of goods sold method to adjust to the lower of cost or net realizable value.

3. Explain the rationale for the use of LCNRV rule as it applies to inventories.

Data:

	Cost	Sales Price	NRV
Raw Material #1	70,000	64,000	56,000
Raw Material #2	86,000	94,000	84,800
Raw Material #3	112,000	186,400	168,300
Raw Material #4	140,000	154,800	140,000
Total	408,000	499,200	449,100

Analysis: