Question

Springer Anderson Gymnastics 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				$	152,000
Cost of Goods Sold
Beginning Inventory	$	18,000
Purchases		97,000
Goods Available for Sale		115,000
Ending Inventory (FIFO cost)		30,420
Cost of Goods Sold					84,580
Gross Profit					67,420
Operating Expenses					34,000
Income from Operations					33,420
Income Tax Expense (30%)					10,026
Net Income				$	23,394

   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:

				Purchase Cost						Market Value per Unit
Item	Quantity			Per Unit			Total
A		1,800		$	3.60		$	6,480		$	4.60
B		800			4.00			3,200			2.60
C		4,100			2.60			10,660			1.30
D		1,800			5.60			10,080			3.60
							$	30,420

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. (Decreases should be indicated by a minus sign.)

Answer 1