PA7-2 Evaluating the Income Statement and Income Tax Effects of Lower of Cost or Market/Net Realizable Value (LO 7-4] Springer Anderson Gymnastics prepared its annual financial statements dated December 31. The company reported its inventory using the LIFO inventory costing method but did not compare the cost of its ending inventory to its market value (replacement cost). The preliminary income statement follows: $154,000 Sales Revenue Cost of Goods Sold Beginning Inventory $ 18,500 98,000 Purchases 116,500 31,930 Goods Available for Sale Ending Inventory Cost of Goods Sold Gross Profit Operating Expenses Income from Operations Income Tax Expense (40%) Net Income 84,570 69,430 34,500 34,930 13,972 $ 20,958 Assume that you have been asked to restate the financial statements to incorporate the LCM/NRV rule. You have developed the following data relating to the ending inventory: Purchase Cost Item A Quantity 1,850 800 4,200 1,850 B Per Unit $3.70 4.00 2.70 5.70 Replacement Cost per Unit $ 4.70 2.70 1.35 3.70 Total $ 6,845 3,200 11,340 10,545 $ 31,930 D Required: 1. Restate the income statement to reflect LCM/NRV valuation of the ending inventory. Apply LCM/NRV on an item-by-item basis. 2. Compare the LCM/NRV effect on each amount that was changed in the preliminary income statement in requirement 1. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Restate the income statement to reflect LCM/NRV valuation of the ending inventory. Apply LCM/NRV on an item-by-item basis. SPRINGER ANDERSON GYMNASTICS Income Statement (LCM/NRV basis) For the Year Ended December 31 Sales Revenue Cost of Goods Sold: Beginning Inventory Purchases Goods Available for Sale Ending Inventory Cost of Goods Sold Gross Profit Operating Expenses Income from Operations Income Tax Expense Net Income Required: 1. Restate the income statement to reflect LCM/NRV valuation of the ending inventory. Apply LCM/NRV on an item-by-item 2. Compare the LCM/NRV effect on each amount that was changed in the preliminary income statement in requirement 1. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compare the LCM/NRV effect on each amount that was changed in the preliminary income statement in requirement 1. (Decreases should be indicated by a minus sign.). Item Changed LIFO Cost Basis LCM/NRV Basis Amount of Increase (Decrease) Ending Inventory Cost of Goods Sold Gross Profit Income from Operations Income Tax Expense Net Income