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: $293,000 $ 32,300 197,000 229, 300 68, 496 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 (30%) Net earnings 160, 804 132,196 63,300 68,896 20,669 $ 48,227 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 Item A B D Quantity 3,180 1,630 7,230 3,330 Unit Total $4.30 $13,674 6.30 10,269 2.80 20, 244 7.30 24,309 $68,496 Net Realizable Value $5.30 4.80 4.80 5.30 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: 0 0 0 $ 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