Question
In: Accounting
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)
|
|||||||||||||||||||||||||||||||||||||||||||||||||
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.)
Solutions
ekkarill92 answered 7 months agoRelated Solutions
Smart Company prepared its annual financial statements dated December 31. The company reported its inventory using...
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 $ 318,000 Cost of Goods Sold Beginning Inventory $
49,000 Purchases 220,000 Goods Available for Sale 269,000 Ending
Inventory 86,500 Cost of Goods Sold 182,500 Gross Profit 135,500
Operating Expenses 80,000 Income from Operations 55,500 Income Tax
Expense (30%) 16,650 Net...
Smart Company prepared its annual financial statements dated December 31. The company reported its inventory using...
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
$
316,000
Cost of Goods Sold
Beginning Inventory
$
48,000
Purchases
218,000
Goods Available for Sale
266,000
Ending Inventory
92,500
Cost of Goods Sold
173,500
Gross Profit
142,500
Operating Expenses
79,000
Income from Operations
63,500
Income Tax Expense (30%)
19,050
Net...
Smart Company prepared its annual financial statements dated December 31. The company reported its inventory using...
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 $ 302,000 Cost of Goods Sold Beginning Inventory $
41,000 Purchases 204,000 Goods Available for Sale 245,000 Ending
Inventory 95,400 Cost of Goods Sold 149,600 Gross Profit 152,400
Operating Expenses 72,000 Income from Operations 80,400 Income Tax
Expense (30%) 24,120 Net...
Springer Anderson Gymnastics prepared its annual financial statements dated December 31. The company used the FIFO...
Springer Anderson Gymnastics prepared its annual financial
statements dated December 31. The company used the FIFO inventory
costing method, but it failed to apply the LC&NRV to the ending
inventory. The preliminary income statement is as
follows:
Sales Revenue
$
225,000
Cost of Goods Sold
Beginning Inventory
$
23,500
Purchases
125,000
Goods Available for
Sale
148,500
Ending Inventory (FIFO cost)
30,395
Cost of Goods Sold
118,105
Gross Profit
106,895
Operating Expenses
48,000
Income from Operations...
Springer Anderson Gymnastics prepared its annual financial statements dated December 31. The company used the FIFO...
Springer Anderson Gymnastics prepared its annual financial
statements dated December 31. The company used the FIFO inventory
costing method, but it failed to apply the LC&NRV to the ending
inventory. The preliminary income statement is as
follows:
Sales Revenue
$
140,000
Cost of Goods Sold
Beginning Inventory
$
15,000
Purchases
91,000
Goods Available for
Sale
106,000
Ending Inventory (FIFO cost)
22,000
Cost of Goods Sold
84,000
Gross Profit
56,000
Operating Expenses
31,000
Income from Operations...
Mondetta Clothing prepared its annual financial statements dated December 31. The company used the FIFO inventory...
Mondetta Clothing prepared its annual financial statements dated
December 31. The company used the FIFO inventory costing method,
but it failed to apply LCM to the ending inventory. The preliminary
income statement follows:
Net Sales
$
436,000
Cost of Goods
Sold
Beginning Inventory
$
49,000
Purchases
281,000
Goods Available for Sale
330,000
Ending
Inventory (FIFO cost)
95,760
Cost of Goods Sold
234,240
Gross Profit
201,760
Operating
Expenses
97,000
Income from
Operations
104,760
Income Tax Expense...
Jaffa Company prepared its annual financial statements dated December 31 of the current year. The company...
Jaffa 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
lower of cost or net realizable value to the ending inventory. The
preliminary current year income statement follows:
Sales
revenue
$
294,000
Cost of goods
sold
Beginning
inventory
$
34,400
Purchases
198,000
Goods available
for sale
232,400
Ending inventory
(FIFO cost)
63,364
Cost of goods
sold
169,036
Gross
profit
124,964
Operating
expenses...
Springer Anderson Gymnastics prepared its annual financial statements dated December 31. The company reported its inventory...
Springer Anderson Gymnastics prepared its annual financial
statements dated December 31. The company reported its inventory
using the LIFO inventory costing method but did not compare the
cost of its ending inventory to its market value (replacement
cost). The preliminary income statement follows:
Sales Revenue
$
126,000
Cost of Goods Sold
Beginning Inventory
$
11,500
Purchases
84,000
Goods Available for Sale
95,500
Ending Inventory
21,400
Cost of Goods Sold
74,100
Gross Profit
51,900
Operating Expenses
27,500
Income from Operations
24,400...
Springer Anderson Gymnastics prepared its annual financial statements dated December 31. The company reported its inventory...
Springer Anderson Gymnastics prepared its annual financial
statements dated December 31. The company reported its inventory
using the LIFO inventory costing method but did not compare the
cost of its ending inventory to its market value (replacement
cost). The preliminary income statement follows:
Sales Revenue
$
122,000
Cost of Goods Sold
Beginning Inventory
$
10,500
Purchases
82,000
Goods Available for Sale
92,500
Ending Inventory
20,500
Cost of Goods Sold
72,000
Gross Profit
50,000
Operating Expenses
26,500
Income from Operations
23,500...
Springer Anderson Gymnastics prepared its annual financial statements dated December 31. The company reported its inventory...
Springer Anderson Gymnastics prepared its annual financial
statements dated December 31. The company reported its inventory
using the LIFO inventory costing method but did not compare the
cost of its ending inventory to its market value (replacement
cost). The preliminary income statement follows:
Sales Revenue
$
138,000
Cost of Goods Sold
Beginning Inventory
$
14,500
Purchases
90,000
Goods Available for Sale
104,500
Ending Inventory
24,900
Cost of Goods Sold
79,600
Gross Profit
58,400
Operating Expenses
30,500
Income from Operations
27,900...
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