Mondeara Clothing prepared its annual financial statements dated December 31. The company used the FIFO inventory costing method, but it failed to apply LC&NRV to the ending inventory. The preliminary income statement is as follows: 

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

Required: 

1. Restate the income statement to reflect LC&NRV valuation of the ending inventory. Apply LC&NRV on an item-by-item basis and show your computations. 

2. Compare and explain the LC&NRV effect on each amount that was changed in requirement 1. 

3. What is the conceptual basis for applying LC&NRV to merchandise inventory?

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Net Sales $420,000 Cost of Goods Sold Beginning Inventory $ 45,000 Purchases 273,000 Goods Available for Sale 318,000 Ending Inventory (FIFO cost) 66,000 Cost of Goods Sold 252,000 Gross Profit 168,000 93,000 Operating Expenses Income from Operations 75,000 Income Tax Expense (30%) 22,500 Net Income $ 52,500