Question
Springer Anderson Gymnastics prepared its annual financial statements dated December 31. The company reported its inventory using the LIFO inventory costing method but did not
Springer Anderson Gymnastics prepared its annual financial statements dated December 31. The company reported its inventory using the LIFO inventory costing method but did not compare the cost of its ending inventory to its market value (replacement cost). The preliminary income statement follows:
Sales Revenue 142,000
Cost of Goods Sold
Beginning Inventory 15,500
Purchases 92,000
Goods Available for Sale 107,500
ending inventory 23,245
Cost of Goods Sold 84,255
Gross Profit 57,745
Operating Expenses 31,500
Income from Operations 26,245
Income Tax Expense (40%) 10,498
Net Income 15,747
Assume that you have been asked to restate the financial statements to incorporate the LCM/NRV rule. You have developed the following data relating to the ending inventory:
item quantity per unit total replacement cost per unit
a 1550 $3.10 $4,805 $4.10
b 700 4.25 2,975 2.10
c 3,600 2.10 7.560 1.05
d 1,550 5.10 7,905 3.10
23,245
- Restate the income statement to reflect LCM/NRV valuation of the ending inventory. Apply LCM/NRV on an item-by-item basis.
- Compare the LCM/NRV effect on each amount that was changed in the preliminary income statement in requirement 1.
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