value: 0.26 points PA7-2 Evaluating the Income Statement and Income Tax Effects of Lower of Cost or Market [LO 7-4] Springer Anderson Gymnastics prepared its annual financial statements dated December 31. The company used the FIFO inventory costing method, but it failed to apply LCM to the ending inventory. The preliminary income statement follows Sales Revenue Cost of Goods Sold 5150,000 Beginning Inventory Purchases 5 17,500 96,000 Goods Available for Sale Ending Inventory (FIFO cost) 113,500 29.150 Cost of Goods Sold 84.350 Gross Profit Operating Expenses 65,650 33.500 Income from Operations 32.150 ,645 Income Tax Expense (30%) Net Income 5 22,505 Assume that you have been asked to restate the financial statements to incorporate LCM. You have developed the following data relating to the ending inventory Market Value Purchase Cost ltem QuantityPer Unit Total per Unit 1.750 800 4,000 1.750 53.50 4.25 2.50 5.50 S 6,125 3.400 10,000 9,625 54.50 2.50 1.25 3.50 529.150 Required: 1. Restate the income statement to reflect LCM valuation of the ending inventory. Apply LCM on an item- by-item basis. SPRINGER ANDERSON GYMNASTICS Income Statement (LCM basis) For the Year Ended December 31 Sales Revenue Cost of Goods Sold Beginning Inventory Purchases Goods Available for Sale Ending Inventory Cost of Goods Sold Gross Profit Operating Expenses Income from Operations Income Tax Expense Net Income 2. Compare the LCM effect on each amount that was changed in requirement 1. (Decreases should be indicated by a minus sign.) Amount of FIFO Cost Basis Item Changed LCM Basis Increase (Decrease) Ending Inventory Cost of Goods Sold Gross Profit Income from Operations Income Tax Expense Net Income