Question
In: Accounting
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 | $ | 140,000 | ||||||
| Cost of Goods Sold | ||||||||
| Beginning Inventory | $ | 15,000 | ||||||
| Purchases | 91,000 | |||||||
| Goods Available for Sale | 106,000 | |||||||
| Ending Inventory | 22,000 | |||||||
| Cost of Goods Sold | 84,000 | |||||||
| Gross Profit | 56,000 | |||||||
| Operating Expenses | 31,000 | |||||||
| Income from Operations | 25,000 | |||||||
| Income Tax Expense (30%) | 7,500 | |||||||
| Net Income | $ | 17,500 | ||||||
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 | 1,500 | $ | 3 | $ | 4,500 | $ | 4 | |||||||
| B | 750 | 4 | 3,000 | 2 | ||||||||||
| C | 3,500 | 2 | 7,000 | 1 | ||||||||||
| D | 1,500 | 5 | 7,500 | 3 | ||||||||||
| $ | 22,000 | |||||||||||||
Required:
- Restate the income statement to reflect LCM/NRV valuation of the ending inventory. Apply LCM/NRV on an item-by-item basis.
- Compare the LCM/NRV effect on each amount that was changed in the preliminary income statement in requirement 1.
Solutions
Expert Solution
| 1. Restated Income Statement as per LCM/ NRV | ||
| Sales Revenue | 140000 | |
| Cost of Goods Sold: | ||
| Beginning Inventory | $15,000 | |
| Purchases | $91,000 | |
| Goods Available for Sale | $106,000 | |
| Less: Ending Inventory (W/N) | $14,000 | |
| Less: Cost of Goods Sold | $92,000 | |
| Gross Profit | $48,000 | |
| Less: Operating Expense | 31000 | |
| Income From Operations | $17,000 | |
| Less: Tax @ 30% | $5,100 | |
| Net Income | $11,900 | |
| Computation of Ending Inventory as per LCM/ NRV | |||
| Item | Quantity | LCM/NRV | Total |
| A | 1500 | $3.00 | $4,500.00 |
| B | 750 | $2.00 | $1,500.00 |
| C | 3500 | $1.00 | $3,500.00 |
| D | 1500 | $3.00 | $4,500.00 |
| Value of Ending Inventory | $14,000.00 | ||
| 2. Statement showing Effect of LCM/ NRV | ||||
| LIFO (A) | LCM/NRV (B) |
Increase/(Decrease) (B-A) |
||
| Ending Inventory | $22,000.00 | $14,000.00 | -$8,000.00 | |
| Cost of Goods Sold | $84,000.00 | $92,000.00 | $8,000.00 | |
| Gross Profit | $56,000.00 | $48,000.00 | -$8,000.00 | |
| Income From Operations | $25,000.00 | $17,000.00 | -$8,000.00 | |
| Income Tax | $7,500.00 | $5,100.00 | -$2,400.00 | |
| Net Income | $17,500.00 | $11,900.00 | -$5,600.00 | |
ekkarill92 answered 1 year agoRelated Solutions
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...
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
$
140,000
Cost of Goods Sold
Beginning Inventory
$
15,000
Purchases
91,000
Goods Available for Sale
106,000
Ending Inventory
22,000
Cost of Goods Sold
84,000
Gross Profit
56,000
Operating Expenses
31,000
Income from Operations
25,000...
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
$
140,000
Cost of Goods Sold
Beginning Inventory
$
15,000
Purchases
91,000
Goods Available for Sale
106,000
Ending Inventory
22,000
Cost of Goods Sold
84,000
Gross Profit
56,000
Operating Expenses
31,000
Income from Operations
25,000...
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
$
160,000
Cost of Goods Sold
Beginning Inventory
$
20,000
Purchases
101,000
Goods Available for Sale
121,000
Ending Inventory
38,140
Cost of Goods Sold
82,860
Gross Profit
77,140
Operating Expenses
36,000
Income from Operations
41,140...
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
$
128,000
Cost of Goods Sold
Beginning Inventory
$
12,000
Purchases
85,000
Goods Available for Sale
97,000
Ending Inventory
21,800
Cost of Goods Sold
75,200
Gross Profit
52,800
Operating Expenses
28,000
Income from Operations
24,800...
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
$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...
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...
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