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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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ekkarill92 answered 8 months ago
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