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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 $ 148,000
Cost of Goods Sold
Beginning Inventory $ 17,000
Purchases 95,000
Goods Available for Sale 112,000
Ending Inventory 27,320
Cost of Goods Sold 84,680
Gross Profit 63,320
Operating Expenses 33,000
Income from Operations 30,320
Income Tax Expense (30%) 9,096
Net Income $ 21,224

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:

Purchase Cost
Item Quantity Per Unit Total Replacement Cost per Unit
A 1,700 $ 3.40 $ 5,780 $ 4.40
B 750 4.00 3,000 2.40
C 3,900 2.40 9,360 1.20
D 1,700 5.40 9,180 3.40
$ 27,320

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 the LCM/NRV effect on each amount that was changed in the preliminary income statement in requirement 1.

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