Smart Company prepared its annual financial statements dated December 31. The company reported its inventory using the FIFO inventory costing method and failed to evaluate its net realizable value at December 31. The preliminary income statement follows Sales Revenue Cost of Goods Sold $304,000 $ 42,000 206,000 248,000 89,600 Beginning Inventory Purchases Goods Available for Sale Ending Inventory Cost of Goods Sold Gross Profit Operating Expenses Income from Operations Income Tax Expense (30%) Net Income 158,408 145,600 73,000 72,600 21,780 50,820 Assume you have been asked to restate the financial statements to incorporate LCM/NRV. You have developed the following data relating to the ending inventory: Purchase Cost Net Realizable Item Quantity Per Unit Total Value per Unit 3,100 1,500 8, 200 3,300 $18,600 13,500 41,000 16, 500 $89,600 $7 9 7 TIP: Inventory write-downs do not affect the cost of goods available for sale. Instead, the effect of the write-down is to reduce ending inventory, which increases Cost of Goods Sold and then affects other amounts in the income statement. 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 and explain the LCM/NRV effect on each amount in the income statement that was changed in requirement 1 Complete this question by entering your answers in the tabs below 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 SMART COMPANY Income Statement (LCMINRV 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 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compare and explain the LCM/NRV effect on each amount in the income statement that was changed in requirement 1 (Decreases should be indicated by a minus sign.) FIFO Cost Basis LCM/NRV Basis Amount of Increase (Decrease) Item Changed Ending Inventory Cost of Goods Sold Gross Profit Income from Operations Income Tax Expense Net Income