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:

  1. Restate the income statement to reflect LCM/NRV valuation of the ending inventory. Apply LCM/NRV on an item-by-item basis.
  2. 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 ago
Next > < Previous

Related 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...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT