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					$	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
Income Tax Expense (30%)						7,440
Net Income					$	17,360

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		2,300		$	2.40			$	5,520			$	3.40
B		700			3.00				2,100				1.40
C		2,900			1.40				4,060				0.70
D		2,300			4.40				10,120				2.40
								$	21,800

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

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2

Restate the income statement to reflect LCM/NRV valuation of the ending inventory. Apply LCM/NRV on an item-by-item basis.

SPRINGER ANDERSON GYMNASTICS
Income Statement (LCM/NRV basis)
For the Year Ended December 31
Sales Revenue		$128,000 answer correct
Cost of Goods Sold:
Beginning Inventory	$12,000 answer correct
Purchases	85,000 answer correct
Goods Available for Sale	97,000 answer correct
Ending Inventory	21,800 answer incorrect
Cost of Goods Sold		75,200 answer incorrect
Gross Profit		52,800 answer incorrect
Operating Expenses		28,000 answer correct
Income from Operations		24,800 answer incorrect
Income Tax Expense		7,440 answer incorrect
Net Income		$17,360 answer incorrect

• Compare the LCM/NRV effect on each amount that was changed in the preliminary income statement in requirement 1. (Decreases should be indicated by a minus sign.)

Item Changed	LIFO Cost Basis	LCM/NRV Basis	Amount of Increase (Decrease)
Ending Inventory	$21,800 answer correct	$21,800 answer incorrect	$0 answer incorrect
Cost of Goods Sold	$75,200 answer correct	not attempted	not attempted
Gross Profit	$52,800 answer correct	not attempted	not attempted
Income from Operations	$24,800 answer correct	not attempted	not attempted
Income Tax Expense	$7,440 answer correct	not attempted	not attempted
Net Income	$17,360 answer correct	not attempted

Answer 1