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:

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 316,000 beginning Inventory Purchases $ 48,000 218,000 266,000 92,500 Goods Available for Sale Ending Inventory Cost of Goods Sold Grosa Profit Operating Expenses Income from Operations Income Tax Expense (30%) Net Income 173,500 142,500 79,000 63,500 19,050 $ 44,450 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 Cast Not Real able 3,700 B 1,s500 C 8,800 512 44 400 13,500 17,600 513 3,40017,000 $92,500 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 thet was changed in requirement 1