Smart Company prepared its annual financial statements dated December 31. The company used the FIFO inventory costing method, but it failed to apply LCM to the ending inventory. The preliminary income statement follows: Sales Revenue $302,000
Cost of Goods Sold
Beginning Inventory $41,000
Purchases 204,000
Goods Available for sale 245,000
Ending Inventory (FIFO cost) 95,400
Cost of Goods Sold 149,600
Gross Profit 152,400
Operating Expenses 72,000
Income from Operations 80,400
Income Tax Expense (30%) 24,120
Net Income $56,280
Assume that you have been asked to restate the financial statements to incorporate LCM. You have developed the following data relating to the ending inventory:
Item Quantity Per Unit Total Market Value per Unit
A 3,000 $5 $15,000 $6
B 2,000 8 16,000 6
C 8,100 4 32,400 6
D 3,200 10 32,000 7
$95,400
Required:
1. Restate the income statement to reflect LCM valuation of the ending inventory. Apply LCM on an item-by-item basis.
2. Compare the LCM effect on each amount that was changed in requirement 1.