Question

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		$148,000
Cost of Goods Sold
Beginning Inventory	17,000
Purchases	95,000
Goods Available for Sale	112,000
Ending Inventory	27,320
Cost of Goods Sold		84,680
Gross Profit		63,320
Operating Expenses		33,000
Income from Operations		30,320
Income Tax Expense 30%		9,096
Net Income		21,224

Assume that you have been asked to restate the financial statements to incorporate the LCM/NRV rule. You have developed the following data relating to the ending inventory:

Purchase Cost
Item	Quantity	Per Unit	Total	Replacement Cost Per Unit
A	1,700	$3.40	$5,780	$4.40
B	750	4.00	3,000	2.40
C	3,900	2.40	9,360	1.20
D	1,700	5.40	9,180	3.40

Restate the income statement to reflect LCM/NRV valuation of the ending inventory. Apply LCM/NRV on an item-by-item basis.

	SPRINGER ANDERSON GYMNASTICS Income Statement (LCM/NRV basis) For the Year Ended December 31 Sales Revenue Cost of Goods Sold: Beginning Inventory Purchases Goods Available for Sale Ending Inventory Cost of Goods Sold Gross Profit Operating Expenses Income from Operations Income Tax Expense Net Income

Compare the LCM/NRV effect on each amount that was changed in the preliminary income statement in requirement 1. (Decreases should be indicated by a minus sign.)

	Item Changed LIFO Cost Basis LCM/NRV Basis Amount of Increase (Decrease) Ending Inventory Cost of Goods Sold Gross Profit Income from Operations Income Tax Expense Net Income

Answer 1