2. Compare and explain the LC&NRV effect on each amount that was changed in part 1. (Negative answers should be indicated by aminus sign.)Item ChangedO DecreasedO No effectO IncreasedEffect3. This part of the question is not part of your Connect assignment.4-a. What effect (Increase, decrease, no effect) did the LC&NRV rule have on the cash flow for 2020?Amount ofChangeO DecreasedO IncreasedO No effect4-b. What will be the long-term effect on cash flow (Increase, decrease, no effect)? Smart Company prepared its annual financial statements dated December 31, 2020. The company applies the FIFO Inventory costingmethod; however, the company neglected to apply the LC&NRV valuation to the ending Inventory. The preliminary 2020 statement ofearnings follows:Sales revenueCost of salesBeginning inventoryPurchasesCost of goods available for saleEnding inventory (FIFO cost)Cost of salesGross profitOperating expensesPretax earningsIncome tax expense (38%)Net earningsIten QuantityABCD3,1801,630Cost of sales:Assume that you have been asked to restate the 2020 financial statements to Incorporate the LC&NRV Inventory valuation rule. Youhave developed the following data relating to the ending Inventory at December 31, 2020:Acquisition CostUnit Total$4.30 $13,6746.30 10,2692.80 20,2447.30 24,309$68,4967,2303,330Net RealizableValue$5.304.804.805.30$ 32,300197,000229,30068,496SMART COMPANYStatement of Earnings (LC&NRV Basis)For the Year Ended December 31, 2020$293,000160,804132, 19663,30068,89620,669$ 48,227Required:1. Restate the statement of earnings to reflect the valuation of the ending Inventory on December 31, 2020, at the LC&NRV. Apply theLC&NRV rule on an Item-by-item basis.

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Description: 2. Compare and explain the LC&NRV effect on each amount that was changed in part 1. (Negative answers should be indicated by aminus sign.)Item ChangedO DecreasedO No effectO IncreasedEffect3. This part of the question is not part of your Connect ass

Smart Company Statement of Earnings (LC & NRV Basis) For the Year Ended Dec 31, 2020 Sales…

Answered: Required: 1. Restate the statement of…

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Accounting

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.

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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Concept explainers

Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.

Topic Video

Question

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.)
Item Changed
O Decreased
O No effect
O Increased
Effect
3. This part of the question is not part of your Connect assignment.
4-a. What effect (Increase, decrease, no effect) did the LC&NRV rule have on the cash flow for 2020?
Amount of
Change
O Decreased
O Increased
O No effect
4-b. What will be the long-term effect on cash flow (Increase, decrease, no effect)?

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:
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 (38%)
Net earnings
Iten Quantity
A
B
C
D
3,180
1,630
Cost of sales:
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
Unit Total
$4.30 $13,674
6.30 10,269
2.80 20,244
7.30 24,309
$68,496
7,230
3,330
Net Realizable
Value
$5.30
4.80
4.80
5.30
$ 32,300
197,000
229,300
68,496
SMART COMPANY
Statement of Earnings (LC&NRV Basis)
For the Year Ended December 31, 2020
$293,000
160,804
132, 196
63,300
68,896
20,669
$ 48,227
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.

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