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Smart Company prepared its annual financial statements dated December 31, 2020. The company applies the FIFO inventory costing method; however, the company neglected to apply the LC&NRV valuation to the ending inventory. The preliminary 2020 statement of earnings follows: $285,000 $ 31,500 189,000 220,500 54,800 Sales revenue Cost of sales Beginning inventory Purchases Cost of goods available for sale Ending inventory (FIFO cost) Cost of sales Gross profit Operating expenses Pretax earnings Income tax expense (40%) Net earnings 165,700 119,300 62,500 56,800 22,720 $ 34,080 Assume that you have been asked to restate the 2020 financial statements to incorporate the LC&NRV inventory valuation rule. You have developed the following data relating to the ending inventory at December 31, 2020: Acquisition Cost Item A B C D Quantity 3,100 1,550 7,150 3,250 Unit Total $3.50 $10,850 5.50 8,525 2.00 14,300 6.50 21,125 $54,800 Net Realizable Value $4.50 4.00 4.00 4.50 Required: 1. Restate the statement of earnings to reflect the valuation of the ending inventory on December 31, 2020, at the LC&NRV. Apply the LC&NRV rule on an item-by-item basis. SMART COMPANY Statement of Earnings (LC&NRV Basis) For the Year Ended December 31, 2020 Sales revenue Cost of sales: Beginning inventory 31,500 Purchases 189,000 $ 285,000 220,500 285,000 285,000 $ 285,000 2. Compare and explain the LC&NRV effect on each amount that was changed in part 1. (Negative answers should be indicated by a minus sign.) Item Changed Effect Amount of Change

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