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 (30%) Net earnings $298,000 $ 32,800 202,000 234,800 77,316 157,484 140,516 63,800 76,716 23,015 $ 53,701 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 Net Realizable Item Quantity Unit Total Value ABCD 3,230 $4.80 $15,504 $5.80 1,680 6.80 7,280 3.30 24,024 3,380 7.80 26,364 $77,316 11,424 5.30 5.30 5.80 Sales revenue SMART COMPANY Statement of Earnings (LC&NRV Basis) For the Year Ended December 31, Current Year Cost of sales: Beginning inventory Purchases Cost of goods available for sale Ending inventory Cost of sales Gross profit Operating expense Pretax earnings Income tax expense Net earnings $ 32,800 202,000 234,800 $ 298,000 298,000 63,800 234,200 $ 234,200 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 Effect Cost of sales Increased Gross profit Decreased Pretax earnings Decreased Income tax expense Decreased Ending inventory Decreased Net earnings Decreased Amount of Change
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 (30%) Net earnings $298,000 $ 32,800 202,000 234,800 77,316 157,484 140,516 63,800 76,716 23,015 $ 53,701 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 Net Realizable Item Quantity Unit Total Value ABCD 3,230 $4.80 $15,504 $5.80 1,680 6.80 7,280 3.30 24,024 3,380 7.80 26,364 $77,316 11,424 5.30 5.30 5.80 Sales revenue SMART COMPANY Statement of Earnings (LC&NRV Basis) For the Year Ended December 31, Current Year Cost of sales: Beginning inventory Purchases Cost of goods available for sale Ending inventory Cost of sales Gross profit Operating expense Pretax earnings Income tax expense Net earnings $ 32,800 202,000 234,800 $ 298,000 298,000 63,800 234,200 $ 234,200 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 Effect Cost of sales Increased Gross profit Decreased Pretax earnings Decreased Income tax expense Decreased Ending inventory Decreased Net earnings Decreased Amount of Change
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
The ending inventory isn't 77316, the cost of sales isn't 157484 and income tax expense isn't 23015. Also find the amount of change.
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 (30%)
Net earnings
$298,000
$ 32,800
202,000
234,800
77,316
157,484
140,516
63,800
76,716
23,015
$ 53,701
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
Net Realizable
Item
Quantity Unit
Total
Value
ABCD
3,230 $4.80 $15,504
$5.80
1,680
6.80
7,280 3.30 24,024
3,380 7.80 26,364
$77,316
11,424
5.30
5.30
5.80
Transcribed Image Text:Sales revenue
SMART COMPANY
Statement of Earnings (LC&NRV Basis)
For the Year Ended December 31, Current Year
Cost of sales:
Beginning inventory
Purchases
Cost of goods available for sale
Ending inventory
Cost of sales
Gross profit
Operating expense
Pretax earnings
Income tax expense
Net earnings
$
32,800
202,000
234,800
$
298,000
298,000
63,800
234,200
$
234,200
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
Effect
Cost of sales
Increased
Gross profit
Decreased
Pretax earnings
Decreased
Income tax expense
Decreased
Ending inventory
Decreased
Net earnings
Decreased
Amount of
Change
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