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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: $297,000 $ 32,700 201,000 233,700 75,536 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 (40%) Net earnings 158,164 138,836 63,700 75, 136 30,054 $ 45,082 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 Quantity 3, 220 1,670 7,270 3,370 MUA Net Realizable Value $5.70 5.20 5.20 5.70 Unit Total $4.70 $15,134 6.70 11,189 3.20 23,264 7.70 25,949 $ 75,536 Required: 1. Restate the statement of earnings to reflect the valuation of the ending inventory on December 31, 2020, at the LC&NRV. Apply the LC&NRV rule on an item-by-item basis. X Answer is complete but not entirely correct. SMART COMPANY Statement of Earnings (LC&NRV Basis) For the Year Ended December 31, 2020 Sales revenue $ 297,000 Cost of sales: $ Beginning inventory Purchases 32,700 201,000 233,700 Cost of goods available for sale Ending inventory Cost of sales 0 X Gross profit Operating expense Pretax earnings Income tax expense Net earnings 297,000 63,700 233,300 0 X 233,300 $ 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.) X Answer is not complete. Item Changed Effect Amount of Change Decreased Increased Decreased Ending inventory Cost of sales Gross profit Income tax expense Pretax earnings Net earnings Decreased Decreased Decreased