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Smart Company prepared its annual financial statements dated December 31, 2020. The company applies the FIFO inventory costing method; however, the company neglected to apply the LC&NRV valuation to the ending inventory. The preliminary 2020 statement of earnings follows: $289,000 $ 31,900 193,000 224,900 61,584 Sales revenue Cost of sales Beginning inventory Purchases Cost of goods available for sale Ending inventory (FIFO cost) Cost of sales Gross profit Operating expenses Pretax earnings Income tax expense (403) Net earnings 163, 316 125,684 62,900 62,784 25, 114 $ 37,670 Assume that you have been asked to restate the 2020 financial statements to incorporate the LC&NRV inventory valuation rule. You have developed the following data relating to the ending inventory at December 31, 2020: Acquisition Cost Item A B Quantity 3, 140 1,590 7,190 3,290 Unit Total $3.90 $12,246 5.90 9,381 2.40 17, 256 6.90 22,701 $61,584 Net Realizable Value $4.90 4.40 4.40 4.90 D Required: 1. Restate the statement of earnings to reflect the valuation of the ending inventory on December 31, 2020, at the C&NRV. Apply the LC&NRV rule on an item-by-item basis. Answer is complete but not entirely correct. SMART COMPANY Statement of Earnings (LC&NRV Basis) For the Year Ended December 31, 2020 Sales revenue Cost of sales: Beginning inventory $ 31,900 Purchases 193,000 $ 289,000 224,900 61,584 X Cost of goods available for sale Ending inventory Cost of sales Gross profit Operating expense Pretax earnings Income tax expense Net earnings 163,316 X 125,684 62,900 62,784 25,114 X 37,670 $ 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.) Answer is not complete. Amount of Change Item Changed Cost of sales Gross profit Pretax earnings Income tax expense Ending inventory Net earnings Effect Increased Decreased Decreased Decreased Decreased Decreased