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Smart Company prepared its annual financial statements dated December 31. The company reported its inventory using the FIFO Inventory costing method and failed to evaluate its net realizable value at December 31. The preliminary income statement follows: Sales Revenue $ 280,000 Cost of Goods Sold Beginning Inventory $ 30,000 Purchases 182,000 Goods available for Sale 212,000 Ending Inventory 44.000 Cost of Goods Sold 168,000 Gross Profit 112,000 Operating penses 61.000 Income from Operations 51,000 Income Tax Expense (30) 15.300 Net Income $ 35,700 Assume you have been asked to restate the financial statements to incorporate LCM/NRV. You have developed the following data relating to the ending inventory ite Quantity 3.000 1.500 7.000 3.000 Purchase Coat Net Realizable Value per Total Unit 59.000 . 5.000 2 4 5 15.000 2 c D TIP: Inventory write-downs do not affect the cost of goods available for sale. Instead, the effect of the write-down is to reduce ending Inventory, which increases Cost of Goods Sold and then affects other amounts in the income statement Required 1 Required 2 Restate the income statement to reflect LCM/NRV valuation of the ending inventory. Apply LCM/NRV on an item-by-item basis. SMART COMPANY Income Statement (LCMNRV basis) For the Year Ended December 31 Sales Revenue Cost of Goods Sold: Beginning Inventory Purchases Goods Available for Sale Ending Inventory Cost of Goods Sold Gross Profit Operating Expenses Income from Operations Income Tax Expense Net Income Required 2 > Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compare and explain the LCM/NRV effect on each amount in the Income statement that was changed in requirement 1. (Decreases should be indicated by a minus sign.) Item Changed FIFO Cost Basis LCMINRV Basis Amount of Increase (Decrease) Ending Inventory Cost of Goods Sold Gross Profit Income from Operations Income Tax Expense Net Income Required 2

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