P6-6 (Algo) Reporting the Statement of Earnings and Cash Flow Effects of Lower of Cost and Net Realizable Value L06-5 Smart Company prepared its annual financial statements dated December 31 of the current year. The company applies the FIFO inventory costing method; however, the company neglected to apply the LC\&NRV valuation to the ending inventory. The preliminary statement of earnings for the current year follows: Assume that you have been asked to restate the financial statements to incorporate the LC\&NRV inventory valuation rule. You have developed the following data relating to the ending inventory at December 31 of the current year: Assume that you have been asked to restate the financial statements to incorporate the LC\&NRV inventory valuation rule. You have developed the following data relating to the ending inventory at December 31 of the current year: Required: 1. Restate the statement of earnings to reflect the valuation of the ending inventory on December 31 of the current year, at the LC\&NRV. Apply the LC\&NRV rule on an item-by-item basis. 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.) 3. This part of the question is not part of your Connect assignment. 4-a. What effect (increase, decrease, no effect) did the LC\&NRV rule have on the cash flow for the current year? No effect Decreased Increased 4-b. What will be the long-term effect on cash flow (increase, decrease, no effect)? Decreased No effect Increased