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: Sales Revenue Cost of Goods Sold $140,000 Beginning Inventory Purchases 15,000 91,000 106,000 22,000 Goods Available for Sale Ending Inventory Cost of Goods Sold Gross Profit Operating Expenses Income from Operations Income Tax Expense (30%) Net Income 84,000 56,000 31,000 25,000 7.500 17,500 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 Replacement ItemQuantity Per Unit 1,500 750 3,500 1,500 TotalCost per Unit 4,500 3,000 7,000 $ 3 $4 $22,000 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