Question

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.

Sales Revenue					$	144,000
Cost of Goods Sold
Beginning Inventory	$	16,000
Purchases		93,000
Goods Available for Sale		109,000
Ending Inventory		24,580
Cost of Goods Sold						84,420
Gross Profit						59,580
Operating Expenses						32,000
Income from Operations						27,580
Income Tax Expense (30%)						8,274
Net Income					$	19,306

				Purchase Cost
Item	Quantity			Per Unit				Total				Replacement Cost per Unit
A		1,600		$	3.20			$	5,120			$	4.20
B		750			4.00				3,000				2.20
C		3,700			2.20				8,140				1.10
D		1,600			5.20				8,320				3.20
								$	24,580

Answer 1

Restated Income Statement:

Sales Revenue		$ 144,000
Cost of Goods Sold
Beginning Inventory	16,000
Purchases	93,000
Goods Available for Sale	109,000
Ending Inventory	15,960
Cost of Goods Sold		93,040
Gross Profit		50,960
Operating Expenses		32,000
Income from Operations		18,960
Income Tax Expense ( 30 %)		5,688
Net Income		13,272

Computation of cost of Ending Inventory: Lower of Cost / Market :

Item	Quantity	Lower of Cost / Market	Amount
A	1,600	$ 3.20	$ 5,120
B	750	2.20	1,650
C	3,700	1.10	4,070
D	1,600	3.20	5,120
Totals			$ 15,960