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: $296,000 $ 32, 600 200,000 232,600 73,764 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 (352) Net earning 158,836 137,164 63,600 73,564 25,747 47,012 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 3,210 $4.60 $14,766 55.60 B 1,660 6.60 10,956 5.10 7,260 3.10 22,506 5.10 D 3,360 7.60 25,536 5.60 $73, 764 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 (L.C&NRV Basis) For the Year Ended December 31, 2020 Sales revenue 296.000 Cost of sales: Beginning inventory S 32,600 Purchases 200.000 232,600 73,764 Cost of goods available for sale Ending inventory Cost of sales Gross profit Operating expense Pretax earings Income tax expense Not eamings 158,836 137,164 63.600 73,564 9.011 64,553 w 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 Cost of sales Gross profit Pretax earnings Income tax expense Ending inventory Net earnings lolos