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 $300,000 Beginning Inventory 40,000 Goods Available for Sale 242,000 76,800 Ending Inventory Cost of Goods Sold Gross Profit Operating Expenses Income fron Operations Income Tax Expense (308) Net Income 165,200 134,800 71,000 63,800 19,140 44,660 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 Net Realizable Item Quantity Per Unit Total Value per Unit Purchase Cost 2,900 1,900 8,000 3,100 $ 4 $11,600 13, 300 24,000 27,900 $76, 800 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