Mondetta Clothing prepared its annual financial statements dated December 31, 2013. The company used the FIFO inventory costing method, but it failed to apply LCM to the ending inventory. The preliminary 2013 income statement follows:

Assume that you have been asked to restate the 2013 financial statements to incorporate LCM. You have developed the following data relating to the 2013 ending inventory:

Required
1. Restate the income statement to reflect LCM valuation of the 2013 ending inventory. Apply LCM on an item-by-item basis and show computations.
2. Compare and explain the LCM effect on each amount that was changed in requirement 1.
3. What is the conceptual basis for applying LCM to merchandise inventories?

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$420,000 Net Sales Cost of Goods Sold $ 45,000 273,000 318,000 66,000 Beginning Inventory Purchases Goods Available for Sale Ending Inventory (FIFO cost) Cost of Goods Sold Gross Profit Operating Expenses Income from Operations Income Tax Expense (30%) Net Income 252,000 168,000 93,000 75,000 22,500 52,500 Acquisition Cost Total $13,500 9,000 21,000 22,500 $66,000 Current Replacement Cost per Unit (Market) $6.00 3.00 6.00 4.50 ltem Quantity 3,000 1,500 7,000 3,000 Per Unit $4.50 6.00 3.00 7.50