Garcia Home Improvement Company installs replacement siding, windows, and louvered glass doors…

Garcia Home Improvement Company installs replacement siding, windows, and louvered glass doors for single-family homes and condominium complexes in northern New Jersey and southern New York. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2014, and Jim Alcide, controller for Garcia, has gathered the following data concerning inventory.

At May 31, 2014, the balance in Garcia’s Raw Materials Inventory account was $536,112, and Allowance to Reduce Inventory to Market had a credit balance of $26,280. Alcide summarized the relevant inventory cost and market data at May 31, 2014, 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, 2014, financial statements for inventory under the lower-of-cost-or-market rule as applied to each item in inventory. Devereaux expressed concern over departing from the historical cost principle.    

Cost  

Replacement Cost  

Sales Price  

Net Realizable Value  

Normal Profit

Aluminum siding  

$ 91,980  

$ 82,125    

$ 84,096    

$ 73,584    

$ 6,701  

Cedar shake siding  

113,004  

104,332    

123,516    

111,427    

9,724  

Louvered glass doors  

147,168  

162,936    

244,930    

221,146    

24,309  

Thermal windows  

183,960  

165,564    

203,407    

183,960    

20,236  

      Total  

$536,112  

$514,957    

$655,949    

$590,117    

$60,970