Smart Company prepared its annual financial statements dated December 31, 2020. The company applies the FIFO...

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			$	297,000
Cost of sales
Beginning inventory	$	32,700
Purchases		201,000
Cost of goods available for sale		233,700
Ending inventory (FIFO cost)		75,536
Cost of sales				158,164
Gross profit				138,836
Operating expenses				63,700
Pretax earnings				75,136
Income tax expense (40%)				30,054
Net earnings			$	45,082

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
Item	Quantity		Unit			Total	Net Realizable Value
A		3,220	$	4.70	$	15,134	$	5.70
B		1,670		6.70		11,189		5.20
C		7,270		3.20		23,264		5.20
D		3,370		7.70		25,949		5.70
					$	75,536

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.(FINISHED BELOW ANSWER QUESTION 2)

SMART COMPANY
Statement of Earnings (LC&NRV Basis)
For the Year Ended December 31, 2020
Sales revenue		$297,000
Cost of sales:
Beginning inventory	$32,700
Purchases	201,000

Cost of goods available for sale	233,700
Ending inventory	66,291
Cost of sales		167,409
Gross profit		129,591
Operating expense		63,700
Pretax earnings		65,891
Income tax expense		26,356
Net earnings		$39,535

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.)

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Expert Solution

ekkarill92 answered 1 month ago

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