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					$	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.

Answer 1

Solution 1:

Solution 2: