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, 2025. Jim Alcide,
controller for Garcia, has gathered the following data concerning inventory.
At May 31, 2025, the balance in Garcia’s Raw Materials Inventory account was $408,000.
Alcide summarized the relevant inventory cost and market data at May 31, 2025, 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, 2025, 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.
Replacement
Cost
Net
Realizable
Value Normal
Profit
For the fiscal year ended May 31, 2025, prepare the entry to record the decline in
inventory to market, if any.
Explain the rationale for the use of the lower-of-cost-or-market rule as it applies to
inventories.
NOTE: Enter a formula, a cell reference, or a value (if you are unable to reference a cell), into
the yellow shaded input cells.
Replacement
Cost
NRV less
normal
profit (Floor)
Louvered glass
doors
Totals $ 408,000 $ 391,900 $ 449,100
2. Calculation of write-down
b.