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 $152,000
Cost of Goods Sold
Beginning Inventory $18,000
Purchases 97,000
Goods Available for Sale 115,000
Ending Inventory 30,420
Cost of Goods Sold 84,580
Gross Profit 67,420
Operating Expenses 34,000
Income from Operations 33,420
Income Tax Expense (30%) 10,026
Net Income $23,394
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 1,800 $3.60 $6,480 $4.60
B 800 4.00 3,200 2.60
C 4,100 2.60 10,660 1.30
D 1,800 5.60 10,080 3.60
$30,420
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.
REQUIRED 1
SPRINGER ANDERSON GYMNASTICS
Income Statement (LCM/NRV 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
REQUIRED 2
Item Changed LIFO Cost Basis | LCM/NRV Basis | Amount of Increase (Decrease)
Ending Inventory
Cost of Goods Sold
Gross Profit
Income from Operations
Income Tax Expense
Net Income
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