Springer Anderson Gymnastics prepared its annual financial statements dated December 31

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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 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

 

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.