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Garcia 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
Garcia 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, 2020.Jim Alcide, controller for Garcia, has gathered the following data concerning inventory At May 31, 2020, the balance in Garcia's Raw Materials Inventory account was $408,000, and Allowance to Reduce Inventory to Market had a credit balance of $27,500. Alcide summarized the relevant inventory cost and market data at May 31, 2020, 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, 2020, financial statements for inventory at lower-of-cost-or-market as applied to each item in inventory. Devereaux expressed concern over departing from the historical cost principle. Assume Garcia uses LIFO inventory costing. Cost Sales Price Normal Profit Aluminum siding Cedar shake siding Louvered glass doors Thermal windows Total $ 70.000 86.000 112.000 140.000 $408.000 Replacement Cost $ 62,500 79,400 124,000 126,000 $391.900 $ 64,000 94,000 186,400 154,800 $499,200 Net Realizable Value $ 56,000 84.800 168,300 140.000 $449.100 $5,100 7.400 18,500 15,400 $46,400 (b) Explain the rationale for the use of the lower-of-cost-or-market rule as it applies to inventories. B 1 TI E 1 99 T | t O Word(s)
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