Springer Anderson Gymnastics prepared its annual financial statements dated December 31. The company used the FIFO inventory
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Question:
Springer Anderson Gymnastics prepared its annual financial statements dated December 31. The company used the FIFO inventory costing method, but it failed to apply the LC&NRV to the ending inventory. The preliminary income statement is as follows:
Sales Revenue | $ | 140,000 | ||||
Cost of Goods Sold | ||||||
Beginning Inventory | $ | 15,000 | ||||
Purchases | 91,000 | |||||
Goods Available for Sale | 106,000 | |||||
Ending Inventory (FIFO cost) | 22,000 | |||||
Cost of Goods Sold | 84,000 | |||||
Gross Profit | 56,000 | |||||
Operating Expenses | 31,000 | |||||
Income from Operations | 25,000 | |||||
Income Tax Expense (30%) | 7,500 | |||||
Net Income | $ | 17,500 | ||||
Assume that you have been asked to restate the financial statements to incorporate the LC&NRV. You have developed the following data relating to the ending inventory:
Purchase Cost | Current Replacement Cost per Unit (Net Realizable Value) | |||||||||||
Item | Quantity | Per Unit | Total | |||||||||
A | 1,500 | $ | 3 | $ | 4,500 | $ | 4 | |||||
B | 750 | 4 | 3,000 | 2 | ||||||||
C | 3,500 | 2 | 7,000 | 1 | ||||||||
D | 1,500 | 5 | 7,500 | 3 | ||||||||
$ | 22,000 | |||||||||||
1-a. Restate the income statement to reflect the LC&NRV rule of the ending inventory.
1-b. Apply the lower cost and net realizable value on an item-by-item basis and show computations.
Related Book For
Experiencing MIS
ISBN: 978-0133153934
3rd Canadian Edition
Authors: David M. Kroenke, Andrew Gemino, Peter Tingling
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