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: $ 299,000 Sales revenue Cost of sales Beginning inventory Purchases $ 32,900 203,000 Cost of goods available for sale Ending inventory (FIFO cost) Cost of sales 235,900 79. 104 156,796 Gross profit Operating expenses 142,204 63,900 Pretax earnings Income tax expense (40%) 78,304 31,322 Net earings $ 46,982 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 Quantity 3,240 1,690 7,290 3,390 Unit $4.90 6.90 3.40 7.90 Total $15,876 11,661 24,786 26,781 $5.90 5.40 5.40 5.90 $79,104 Required: 1. 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 Sales revenue Cost of sales Beginning inventory 32,900 Purchases 203,000 $ 299,000 235,900 299,000 Cost of goods available for sale Ending inventory Cost of sales Gross profit Operating expense Pretax earnings Income tax expense Net earnings 299,000 $ 299,000 2. Compare andere in the area corect compach amo 2. 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 Cost of sales Gross profit Pretax earnings Income tax expense Ending inventory Net earnings Increased Decreased Decreased Decreased Decreased Decreased