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 Beginning Inventory Purchases Goods Available for Sale Ending Inventory Cost of Goods Sold Gross Profit $ 280,000 $ 30,000 182,000 212,000 44,000 168,000 112,000 Operating Expenses Income from Operations Income Tax Expense (30%) Net Income 61,000 51,000 15,300 $ 35,700 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 Per Value per Item Quantity Unit A 3,000 $ 3 Total $ 9,000 Unit $ 4 B 1,500 4 6,000 2 C D 7,000 3,000 2 14,000 5 15,000 $ 44,000 4 2 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.