Question
Springer Anderson Gymnastics prepared its annual financial statements dated December 31. The company used the FIFO inventory costing method, but it failed to apply the
Springer Anderson Gymnastics prepared its annual financial statements dated December 31. The company used the FIFO inventory costing method, but it failed to apply the LC&NRV to the ending inventory. The preliminary income statement is as follows:
Sales Revenue | $ | 225,000 | ||||
Cost of Goods Sold | ||||||
Beginning Inventory | $ | 23,500 | ||||
Purchases | 125,000 | |||||
Goods Available for Sale | 148,500 | |||||
Ending Inventory (FIFO cost) | 30,395 | |||||
Cost of Goods Sold | 118,105 | |||||
Gross Profit | 106,895 | |||||
Operating Expenses | 48,000 | |||||
Income from Operations | 58,895 | |||||
Income Tax Expense (30%) | 17,669 | |||||
Net Income | $ | 41,227 | ||||
Assume that you have been asked to restate the financial statements to incorporate the LC&NRV. You have developed the following data relating to the ending inventory:
Purchase Cost | Current Replacement Cost per Unit (Net Realizable Value) | |||||||||||
Item | Quantity | Per Unit | Total | |||||||||
A | 1,670 | $ | 2.00 | $ | 3,340 | $ | 4.35 | |||||
B | 920 | 5.50 | 5,060 | 2.00 | ||||||||
C | 3,660 | 3.50 | 12,810 | 1.00 | ||||||||
D | 1,670 | 5.50 | 9,185 | 3.50 | ||||||||
$ | 30,395 | |||||||||||
Required: 1-a. Restate the income statement to reflect the LC&NRV rule of the ending inventory.
1-b. Apply the lower of cost and net realizable value on an item-by-item basis and show computations.
2. Not available in connect. 3. Not available in connect.
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