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, 2017. The company applies the FIFO inventory costing method; however, the company neglected to apply the LC&NRV valuation to the ending inventory. The preliminary 2017 statement of earnings follows: $ 286,000 Sales revenue Cost of sales Beginning inventory Purchases $ 31,600 190,000 Cost of goods available for sale Ending inventory (FIFO cost) Cost of sales 221,600 56,484 165, 116 Gross profit Operating expenses 120,884 62,600 Pretax earnings Income tax expense (30%) 58,284 17,485 Net earnings $ 40,799 Assume that you have been asked to restate the 2017 financial statements to incorporate the LC&NRV inventory valuation rule. You have developed the following data relating to the ending inventory at December 31, 2017: Net Realizable Value Acquisition Cost Item A B D Quantity 3,110 1,560 7,160 3,260 Unit $3.60 5.60 2.10 6.60 Total $11,196 8,736 15,036 21,516 $4.60 4.10 4.10 4.60 $56,484 Restate the statement of earnings to reflect the valuation of the ending inventory on December 31, 2017, at the LC&NRV. Apply the LC&NRV rule on an item-by-item basis SMART COMPANY Statement of Earnings (LCM basis) For the Year Ended December 31, 2017 Cost of sales 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