P7-6 Reporting the Statement of Earnings and Cash Flow Effects of Lower of Cost and Net Realizable Value LO7-5 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: $287,000 $ 31,700 191,000 222,700 58,176 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 (48%) Net earnings 164,524 122,476 62,700 59,776 23,910 $ 35,866 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 3,120 $3.70 $11,544 $4.70 B 1,570 5.70 8,949 C 7,170 2.20 15,774 D 3,270 6.70 21,909 4.70 $58,176 4.20 4.20 Download 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. SMART COMPANY Statement of Earnings (LC&NRV Basis) For the Year Ended December 31, 2020 Cost of sales: 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.) Amount of Change Item Changed Effect