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 $292,000 Beginning Inventory Purchases 36,000 194,000 230,000 106,800 Goods Available for Sale Ending Inventory Cost of Goods Sold Gross Profit Operating Expenses Income from Operations Income Tax Expense (30%) Net Income 123,200 168,800 67,000 101,800 30,540 $ 71,260 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 Total Value per Unit Item Quantity Per Unit 2,500 1,500 7,600 3,200 $ 6 10 $ 15,000 15,000 60,800 16,000 $106,800 5 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 Complete this question by entering your answers in the tabs below. Required 1Required 2 Restate the income statement to reflect LCM/NRV valuation of the ending inventory. Apply LCM/NRV on an item-by-item basis SMART COMPANY Income Statement (LCM/NRV basis) For the Year Ended December 31 Sales Revenue $292,000 Cost of Goods Sold $36,000 194,000 230,000 106,800 Beginning Inventory Purchases Goods Available for Sale Ending Inventory Cost of Goods Sold Gross Profit Operating Expenses Income from Operations Income Tax Expense Net Income K Required 1 Required 2 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compare and explain the LCM/NRV effect on each amount in the income statement that was changed in requirement 1. CDecreases should be indicated by a minus sign.) LCM/NRV Amount of Basis (Decrease) Item Changed FIFO Cost Basis Increase Ending Inventory Cost of Goods Sold Gross Profit Income from Operations Income Tax Expense Net Income Required! Required 2