Smart Company prepared its annual financial statements datedDecember 31, 2020. The company applies the FIFO inventory costingmethod; however, the company neglected to apply the LC&NRVvaluation to the ending inventory. The preliminary 2020 statementof earnings follows:

Sales revenue				$	297,000
Cost of sales
Beginning inventory	$	32,700
Purchases		201,000
Cost of goods available for sale		233,700
Ending inventory (FIFO cost)		75,536
Cost of sales					158,164
Gross profit					138,836
Operating expenses					63,700
Pretax earnings					75,136
Income tax expense (40%)					30,054
Net earnings				$	45,082

Assume that you have been asked to restate the 2020 financialstatements to incorporate the LC&NRV inventory valuation rule.You have developed the following data relating to the endinginventory at December 31, 2020:

				Acquisition Cost
Item	Quantity			Unit				Total		Net Realizable Value
A		3,220		$	4.70		$	15,134		$	5.70
B		1,670			6.70			11,189			5.20
C		7,270			3.20			23,264			5.20
D		3,370			7.70			25,949			5.70
							$	75,536

1. Restate the statement of earnings to reflect the valuation ofthe ending inventory on December 31, 2020, at the LC&NRV. Applythe LC&NRV rule on an item-by-item basis.(FINISHED BELOW ANSWERQUESTION 2)

	SMART COMPANY Statement of Earnings (LC&NRVBasis) For the Year Ended December 31,2020 Sales revenue $297,000 Cost of sales: Beginning inventory $32,700 Purchases 201,000 Cost of goods available for sale 233,700 Ending inventory 66,291 Cost of sales 167,409 Gross profit 129,591 Operating expense 63,700 Pretax earnings 65,891 Income tax expense 26,356 Net earnings $39,535

2. Compare and explain the LC&NRV effect on each amount thatwas changed in part 1. (Negative answers should beindicated by a minus sign.)