PB7-2 (Algo) Evaluating the Income Statement and Income Tax Effects of Lower of Cost or Market/Net Realizable Value (LO 7-4) Mondetta Clothing prepared its annual financial statements dated December 31. The company used the FIFO inventory costing method, but it failed to evaluate the net realizable value of its ending inventory. The preliminary income statement follows: Net Sales Cost of Goods Sold $ 428, 000 $ 47, 608 277, B08 324, BO ве, 248 Beginning Inventory Purchases Goods Available for Sale Ending Inventory Cost of Goods Sold 243, 768 184,248 95, 000 Gross Profit Operating Expenses Incone from Operations Incone Tax Expense (3N) 26,772 Net Incone S 62,468 Assume that you have been asked to restate the financial statements to incorporate LCMNRV. You have developed the following data relating to the ending inventory: Net Realizable Value per Unit S 16, 660 S 6.48 3.4 25, 160 6.48 Acquisition Cost Quantsty 3,400 1, 700 7, 400 3, 400 Total Item A Per Unit S 4.90 6.80 3.40 7.90 11, 560 26, 860 4.98 S 88, 248 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.

Intermediate Accounting: Reporting And Analysis

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ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter22: Accounting For Changes And Errors.

Section: Chapter Questions

Problem 4P: Schmidt Company began operations on January 1, 2018, and used the LIFO inventory method for both...

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PB7-2 (Algo) Evaluating the Income Statement and Income Tax Effects of Lower of Cost or Market/Net Realizable Value [LO 7-4]

Mondetta Clothing prepared its annual financial statements dated December 31. The company used the FIFO inventory costing method, but it failed to evaluate the net realizable value of its ending inventory. The preliminary income statement follows:

Net Sales		$ 428,000
Cost of Goods Sold
Beginning Inventory	$ 47,000
Purchases	277,000
Goods Available for Sale	324,000
Ending Inventory	80,240
Cost of Goods Sold		243,760
Gross Profit		184,240
Operating Expenses		95,000
Income from Operations		89,240
Income Tax Expense (30%)		26,772
Net Income		$ 62,468

Assume that you have been asked to restate the financial statements to incorporate LCM/NRV. You have developed the following data relating to the ending inventory:

Required:

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.

PB7-2 (Algo) Evaluating the Income Statement and Income Tax Effects of Lower of Cost or Market/Net
Realizable Value (LO 7-4)
Mondetta Clothing prepared its annual financial statements dated December 31. The company used the FIFO inventory costing
method, but it failed to evaluate the net realizable value of its ending inventory. The preliminary income statement follows:
$ 428, 088
Net Sales
Cost of Goods Sold
Beginning Inventory
Purchases
Goods Available for Sale
Ending Inventory
Cost of Goods Sold
$ 47, B08
277, e08
324, B08
во, 248
243, 768
184,248
95,080
89,248
26, 772
Gross Profit
Operating Expenses
Income from Operations
Incone Tax Exрепse (3ем)
Net Incone
$ 62,468
Assume that you have been asked to restate the financial statements to incorporate LCM/NRV. You have developed the following data
relating to the ending inventory:
Net
Realizable
Value per
Acquisition Cost
Total
$ 16, 660 $ 6.48
11, 560
25, 160
26, 860
Item
Quantity
3, 400
1, 700
7, 400
3, 409
Per Unit
$ 4.90
6.80
3.40
7.90
Unit
в
3.48
6.48
4.98
$ 88, 240
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.
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 an an item-by-item basis.
MONDETTA CLOTHING
Income Statement (LCMINRV basis)
For the Year Ended December 31
Net Sales
Cost of Goods Sokt:
Beginning Inventory
Purchases
Goods Avalable for Sale
Ending Inventory
Cost of Goods Sold
Gross Profit
Operating Expenses
Income from Operations
Income Tax Exреnse
Net Income

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