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FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Smart Company prepared its annual financial statements dated December 31 of the current year. The company applies the FIFO Inventory costing method; however, the company neglected to apply the LC&NRV valuation to the ending inventory. The preliminary statement of earnings for the current year follows: 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 Item Quantity A B C D 3,160 1,618 7,210 3,310 Cost of sales: Assume that you have been asked to restate the financial statements to incorporate the LC&NRV inventory valuation rule. You have developed the following data relating to the ending inventory at December 31 of the current year. Acquisition Cost Unit Total $4.10 $12,956 9,821 6.10 2.60 18,746 7.10 23,501 $65,024 Net Realizable Value Item Changed $ 32,100 195,000 $5.10 4.60 4.60 5.10 227,100 65,024 SMART COMPANY Statement of Earnings (LC&NRV Basis) For the Year Ended December 31, Current Year Effect Required: Restate the statement of earnings to reflect the valuation of the ending inventory on December 31 of the current year, at the LC&NRV. Apply the LC&NRV rule on an item-by-item basis. 0 $291,000 162,076 128,924 63,100 $ Amount of Change 65,824 26,330 $ 39,494 0 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.) 0 0
Transcribed Image Text:Smart Company prepared its annual financial statements dated December 31 of the current year. The company applies the FIFO Inventory costing method; however, the company neglected to apply the LC&NRV valuation to the ending inventory. The preliminary statement of earnings for the current year follows: 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 Item Quantity A B C D 3,160 1,618 7,210 3,310 Cost of sales: Assume that you have been asked to restate the financial statements to incorporate the LC&NRV inventory valuation rule. You have developed the following data relating to the ending inventory at December 31 of the current year. Acquisition Cost Unit Total $4.10 $12,956 9,821 6.10 2.60 18,746 7.10 23,501 $65,024 Net Realizable Value Item Changed $ 32,100 195,000 $5.10 4.60 4.60 5.10 227,100 65,024 SMART COMPANY Statement of Earnings (LC&NRV Basis) For the Year Ended December 31, Current Year Effect Required: Restate the statement of earnings to reflect the valuation of the ending inventory on December 31 of the current year, at the LC&NRV. Apply the LC&NRV rule on an item-by-item basis. 0 $291,000 162,076 128,924 63,100 $ Amount of Change 65,824 26,330 $ 39,494 0 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.) 0 0
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