P9-2B (Lower-of-Cost-or-Market) Shrimp Hurricane Helper Company installs three tyes of hurricane shutters (standard, accordian, and roll top) for single-family homes and condominium complexes along the Lousianna coast. The company is in the process of preparing its annual financial state ments for the fiscal year ended March 31, 2014, and the controller for Shrimp has gathered the follow ing data concerning inventory. At March 31, 2014, the balance in Shrimps Finished Goods Inventory account was $645,000, and the Allowance to Reduce Inventory to Market had a credit balance of $30,600. The relevant inventory cost and market data at March 31, 2014, is summarized in the schedule below. The conroller assigned an intern from a local university the task of calculating the amount that should appear on Shrimps March 31, 2014, financial statements for inventory under the lower-of-cost-or-market rule as applied to each item in inventory. The intern was not comfortable with the departure from the cost principle. Cost Replacement Cost Sales Price Net Realizable Value Normal Profi t Standard $ 181,000 $ 152,000 $ 158,000 $ 151,000 $ 15,000 Accordian 254,000 249,800 275,000 262,500 27,800 Roll top 210,000 214,000 216,400 206,000 19,200 Total $ 645,000 $ 615,800 $ 649,400 $ 619,500 $ 62,000 Instructions (a) (1) Determine the proper balance in the Allowance to Reduce Inventory to Market at March 31, 2014. (2) For the fiscal year ended March 31, 2014, determine the amount of the gain or loss that would be recorded due to the change in the Allowance to Reduce Inventory to Market. (b) Explain the rationale for the use of the lower-of-cost-or-market rule as it applies to inventories.