P7-6 Reporting the Statement of Earnings and Cash Flow Effects of Lower of Cost and Net Realizable Value L07-5 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: 5297,000 $ 32,700 201,000 233,700 25.536 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 158,16 130,836 63200 75,136 38,054 545,013 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 Net Realizable Item Quantity Unit Total Value 3,220 54.20 $15,134 55.70 1,670 6.70 11,189 5.20 7,270 3.20 23,264 D 7.70 25,949 5.70 $75,536 A 5.20 Required: 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. Answer is complete but not entirely correct. SMART COMPANY 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. Answer is complete but not entirely correct. SMART COMPANY Statement of Earnings (LC&NRV Basis) For the Year Ended December 31, 2020 Sales revenue Cost of sales $ Beginning inventory 32.700 Purchases 201.000 $ 297 000 Oo 233,700 75,5363 Cost of goods available for sale Ending Inventory Cost of sales Gross profit Operating expense Pretax earnings Income tax expense Net earnings OOOOOOOO 158,164 138,836 63.700 75,136 30,0543 45,082 $ 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.) Answer is not complete. Effect Amount of Change Item Changed Ending inventory Cost of sales Gross profit Pretax earnings Income tax expenso Not earnings Decreased Increased Decreased Decreased Decreased Decreased oooo