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: Sales revenue $292,000 Cost of sales Beginning inventory 3.32,200 Purchases 196,000 Cost of goods available for sale. 220,200 Ending inventory (FIFO cost) 66,756 Cost of sales 161,444 Gross profit 130,556 Operating expenses 63,200 Pretax earnings 67,356 26,942 40,414 Income tax expense (40%) Het earnings 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 Cont Not Realisable Item Quantity Unis Total Value A 3,170 $4.20 $13,314 $5.20 " 1,620 6.201 10,044 4.70 C 7,220 2.70 19,494 4.70 D 3,320 7.20 23,904 5.20 566,756 Required: 1. Restate the statement of earnings to reflect the valuation of the ending inventory on December 31, 2020, at the LCSNRV. Apply the LC&NRV rule on an item-by-item basis. Cost of sales: SMART COMPANY Statement of Earnings (L.CANRV Basis) For the Year Ended December 31, 2020) 0 0 0 4 $ 0 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.) Item Changed Effect Amount of Change 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 2020? No effect O Decreased O Increased 4-a. What effect (increase, decrease, no effect) did the LC&NRV rule have on the cash flow for 2020? O No effect O Decreased O Increased 4-b. What will be the long-term effect on cash flow (increase, decrease, no effect)? No effect Increased O Decreased 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: Sales revenue $292,000 Cost of sales Beginning inventory $32,200 Purchases 196,000 Cost of goods available for sale 228,200 Ending inventory (FIFO costy 66.756 Cost of sales 161,444 Operating expenses Cross profit Pretax earnings Income tax expense (40%)) Net earnings 130,556 63,200 67,356 26,942 5 40,414 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 Itam Quantity Uni Total Value A 3,170 $4.20 $13,314 55.20 B 1,620 6.20 10,044 4.70 C 7,220 2.70 19.494 4.70 D 3,320 7.20 23,904 5.20 $66,756