Smart Company prepared its annual financial statements dated December 31. The company reported its inventory using the FIFO inventory costing method and failed to evaluate its net realizable value at December 31. The preliminary income statement follows: Sales Revenue Cost of Goods Sold Beginning Inventory Purchases Ending Inventory Goods Available for Sale Gross Profit Operating Expenses Income from Operations Income Tax Expense (30%) Net Income Item Cost of Goods Sold 6ABUD А Assume you have been asked to restate the financial statements to incorporate LCM/NRV. You have developed the following data relating to the ending inventory: Quantity 3,800 1,600 8,900 3,500 Purchase Cost Per Unit Total $6 $ 22,800 10 16,000 26,700 21,000 $ 86,500 3 6 Net Realizable Value per Unit $7 8 $ 49,000 220,000 269,000 86,500 5 3 $ 318,000 182,500 135,500 80,000 55,500 16.650 $ 38,850 TIP: Inventory write-downs do not affect the cost of goods available for sale. Instead, the effect of the write-down is to reduce ending inventory, which increases Cost of Goods Sold and then affects other amounts in the income statement. 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 and explain the LCM/NRV effect on each amount in the income statement that was changed in requirement 1.
Smart Company prepared its annual financial statements dated December 31. The company reported its inventory using the FIFO inventory costing method and failed to evaluate its net realizable value at December 31. The preliminary income statement follows: Sales Revenue Cost of Goods Sold Beginning Inventory Purchases Ending Inventory Goods Available for Sale Gross Profit Operating Expenses Income from Operations Income Tax Expense (30%) Net Income Item Cost of Goods Sold 6ABUD А Assume you have been asked to restate the financial statements to incorporate LCM/NRV. You have developed the following data relating to the ending inventory: Quantity 3,800 1,600 8,900 3,500 Purchase Cost Per Unit Total $6 $ 22,800 10 16,000 26,700 21,000 $ 86,500 3 6 Net Realizable Value per Unit $7 8 $ 49,000 220,000 269,000 86,500 5 3 $ 318,000 182,500 135,500 80,000 55,500 16.650 $ 38,850 TIP: Inventory write-downs do not affect the cost of goods available for sale. Instead, the effect of the write-down is to reduce ending inventory, which increases Cost of Goods Sold and then affects other amounts in the income statement. 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 and explain the LCM/NRV effect on each amount in the income statement that was changed in requirement 1.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
s
![Homework i
CP7-2 (Algo) Evaluating the Income Statement and Income Tax Effects of Lower of Cost or Market/Net
Realizable Value [LO 7-4]
Smart Company prepared its annual financial statements dated December 31. The company reported its inventory using
the FIFO inventory costing method and failed to evaluate its net realizable value at December 31. The preliminary
income statement follows:
Sales Revenue
Cost of Goods Sold
Beginning Inventory
Purchases
Ending Inventory
Goods Available for Sale
Gross Profit
Operating Expenses
Income from Operations
Income Tax Expense (30%)
Net Income
Item
Cost of Goods Sold
ABCD
Assume you have been asked to restate the financial statements to incorporate LCM/NRV. You have developed the
following data relating to the ending inventory:
Quantity
3,800
1,600
8,900
3,500
Purchase Cost
Per
Unit
Total
$6
$ 22,800
10
3
16,000
26,700
21,000
6
$ 86,500
Net
Realizable
Value per
Unit
$7
8
5
сл оо -
$ 49,000
220,000
269,000
86,500
3
$ 318,000
182,500
135,500
80,000
55,500
16,650
$38.850
TIP: Inventory write-downs do not affect the cost of goods available for sale. Instead, the effect of the write-down is to
reduce ending inventory, which increases Cost of Goods Sold and then affects other amounts in the income statement.
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 and explain the LCM/NRV effect on each amount in the income statement that was changed in requirement
1.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1c80c5f7-61ac-4466-910c-3c4f52dd24bf%2Fea58a68b-8683-4f52-bd84-87c12dfb5953%2F2cgzpsu_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Homework i
CP7-2 (Algo) Evaluating the Income Statement and Income Tax Effects of Lower of Cost or Market/Net
Realizable Value [LO 7-4]
Smart Company prepared its annual financial statements dated December 31. The company reported its inventory using
the FIFO inventory costing method and failed to evaluate its net realizable value at December 31. The preliminary
income statement follows:
Sales Revenue
Cost of Goods Sold
Beginning Inventory
Purchases
Ending Inventory
Goods Available for Sale
Gross Profit
Operating Expenses
Income from Operations
Income Tax Expense (30%)
Net Income
Item
Cost of Goods Sold
ABCD
Assume you have been asked to restate the financial statements to incorporate LCM/NRV. You have developed the
following data relating to the ending inventory:
Quantity
3,800
1,600
8,900
3,500
Purchase Cost
Per
Unit
Total
$6
$ 22,800
10
3
16,000
26,700
21,000
6
$ 86,500
Net
Realizable
Value per
Unit
$7
8
5
сл оо -
$ 49,000
220,000
269,000
86,500
3
$ 318,000
182,500
135,500
80,000
55,500
16,650
$38.850
TIP: Inventory write-downs do not affect the cost of goods available for sale. Instead, the effect of the write-down is to
reduce ending inventory, which increases Cost of Goods Sold and then affects other amounts in the income statement.
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 and explain the LCM/NRV effect on each amount in the income statement that was changed in requirement
1.
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