Question

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					58,895
Income Tax Expense (30%)					17,669
Net Income				$	41,227

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

				Purchase Cost						Current Replacement Cost per Unit (Net Realizable Value)
Item	Quantity			Per Unit			Total
A		1,670		$	2.00		$	3,340		$	4.35
B		920			5.50			5,060			2.00
C		3,660			3.50			12,810			1.00
D		1,670			5.50			9,185			3.50
							$	30,395

Required:
1-a. Restate the income statement to reflect the LC&NRV rule of the ending inventory.

1-b. Apply the lower of cost and net realizable value on an item-by-item basis and show computations.

2. Not available in connect.

3. Not available in connect.

Next

Answer 1

1-a.)	Income Statement -LC&NRV		Amount in $
	Sales Revenue		225,000
	Cost of Goods Sold
	Beginning Inventory	23,500
	Add:Purchases	125,000
	Goods Available for Sale	148,500
	Less :Ending Inventory (LC&NRV)	14,685
	Cost of Goods Sold		133,815
	Gross Profit		91,185
	Less: Operating Expenses		48,000
	Income from Operations		43,185
	Less:Income Tax Expense (30%)		12,956
	Net Income		30,230

1-b.)	Item	Quantity	Purchase cost Per Unit-A	Current Replacement per unit-B	LC&NRV (lower of A & B ) - C	Total LC&NRV $ ( Quantity x C)
	A	1,670	2	4.35	2	3,340
	B	920	5.5	2	2	1,840
	C	3,660	3.5	1	1	3,660
	D	1,670	5.5	3.5	3.50	5,845
	Total	7,920				14,685