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Smart Company prepared its annual financial statements dated December 31. The company used the FIFO inventory costing method, but it failed to apply LCM to

Smart Company prepared its annual financial statements dated December 31. The company used the FIFO inventory costing method, but it failed to apply LCM to the ending inventory. The preliminary income statement follows: Sales Revenue $ 296,000 Cost of Goods Sold Beginning Inventory $ 38,000 Purchases 198,000 Goods Available for Sale 236,000 Ending Inventory (FIFO cost) 131,900 Cost of Goods Sold 104,100 Gross Profit 191,900 Operating Expenses 69,000 Income from Operations 122,900 Income Tax Expense (30%) 36,870 Net Income $ 86,030 Assume that you have been asked to restate the financial statements to incorporate LCM. You have developed the following data relating to the ending inventory: Purchase Cost Market Value per Unit Item Quantity Per Unit Total

A 2,700 $ 8 $ 21,600 $ 9

B 1,700 5 8,500 3

C 7,800 10 78,000 12

D 3,400 7 23,800 4 $ 131,900

Restate the income statement to reflect LCM valuation of the ending inventory. Apply LCM on an item-by-item basis.

Compare the LCM effect on each amount that was changed in requirement 1.

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