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Smart Company prepared its annual financial statements dated December 31 of the current year. The company applies the FIFO inventory costing method; however, the company neglected to apply the LC&NRV valuation to the ending inventory. The preliminary statement of earnings for the current year follows: Sales revenue Cost of sales Beginning inventory Purchases Cost of goods available for sale Ending inventory (FIFO cost) Cost of sales Gross profit Operating expenses Pretax earnings Income tax expense (30%) Net earnings $298,000 $ 32,800 202,000 234,800 77,316 157,484 140,516 63,800 76,716 23,015 $ 53,701 Assume that you have been asked to restate the financial statements to incorporate the LC&NRV inventory valuation rule. You have developed the following data relating to the ending inventory at December 31 of the current year: Acquisition Cost Net Realizable Item Quantity Unit Total Value ABCD 3,230 $4.80 $15,504 $5.80 1,680 6.80 7,280 3.30 24,024 3,380 7.80 26,364 $77,316 11,424 5.30 5.30 5.80 Sales revenue SMART COMPANY Statement of Earnings (LC&NRV Basis) For the Year Ended December 31, Current Year Cost of sales: Beginning inventory Purchases Cost of goods available for sale Ending inventory Cost of sales Gross profit Operating expense Pretax earnings Income tax expense Net earnings $ 32,800 202,000 234,800 $ 298,000 298,000 63,800 234,200 $ 234,200 2. Compare and explain the LC&NRV effect on each amount that was changed in part 1. (Negative answers should be indicated by a minus sign.) Item Changed Effect Cost of sales Increased Gross profit Decreased Pretax earnings Decreased Income tax expense Decreased Ending inventory Decreased Net earnings Decreased Amount of Change

Smart Company prepared its annual financial statements dated December 31 of the current year. The company applies the FIFO inventory costing method; however, the company neglected to apply the LC&NRV valuation to the ending inventory. The preliminary statement of earnings for the current year follows: Sales revenue Cost of sales Beginning inventory Purchases Cost of goods available for sale Ending inventory (FIFO cost) Cost of sales Gross profit Operating expenses Pretax earnings Income tax expense (30%) Net earnings $298,000 $ 32,800 202,000 234,800 77,316 157,484 140,516 63,800 76,716 23,015 $ 53,701 Assume that you have been asked to restate the financial statements to incorporate the LC&NRV inventory valuation rule. You have developed the following data relating to the ending inventory at December 31 of the current year: Acquisition Cost Net Realizable Item Quantity Unit Total Value ABCD 3,230 $4.80 $15,504 $5.80 1,680 6.80 7,280 3.30 24,024 3,380 7.80 26,364 $77,316 11,424 5.30 5.30 5.80 Sales revenue SMART COMPANY Statement of Earnings (LC&NRV Basis) For the Year Ended December 31, Current Year Cost of sales: Beginning inventory Purchases Cost of goods available for sale Ending inventory Cost of sales Gross profit Operating expense Pretax earnings Income tax expense Net earnings $ 32,800 202,000 234,800 $ 298,000 298,000 63,800 234,200 $ 234,200 2. Compare and explain the LC&NRV effect on each amount that was changed in part 1. (Negative answers should be indicated by a minus sign.) Item Changed Effect Cost of sales Increased Gross profit Decreased Pretax earnings Decreased Income tax expense Decreased Ending inventory Decreased Net earnings Decreased Amount of Change

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter15: Financial Statement Analysis
Section: Chapter Questions
Problem 38E: Sundahl Companys income statements for the past 2 years are as follows: Refer to the information for...
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The ending inventory isn't 77316, the cost of sales isn't 157484 and income tax expense isn't  23015. Also find the amount of change. 

Smart Company prepared its annual financial statements dated December 31 of the current year. The company applies the FIFO inventory costing method; however, the company neglected to apply the LC&NRV valuation to the ending inventory. The preliminary statement of earnings for the current year follows: Sales revenue Cost of sales Beginning inventory Purchases Cost of goods available for sale Ending inventory (FIFO cost) Cost of sales Gross profit Operating expenses Pretax earnings Income tax expense (30%) Net earnings $298,000 $ 32,800 202,000 234,800 77,316 157,484 140,516 63,800 76,716 23,015 $ 53,701 Assume that you have been asked to restate the financial statements to incorporate the LC&NRV inventory valuation rule. You have developed the following data relating to the ending inventory at December 31 of the current year: Acquisition Cost Net Realizable Item Quantity Unit Total Value ABCD 3,230 $4.80 $15,504 $5.80 1,680 6.80 7,280 3.30 24,024 3,380 7.80 26,364 $77,316 11,424 5.30 5.30 5.80
Transcribed Image Text:Smart Company prepared its annual financial statements dated December 31 of the current year. The company applies the FIFO inventory costing method; however, the company neglected to apply the LC&NRV valuation to the ending inventory. The preliminary statement of earnings for the current year follows: Sales revenue Cost of sales Beginning inventory Purchases Cost of goods available for sale Ending inventory (FIFO cost) Cost of sales Gross profit Operating expenses Pretax earnings Income tax expense (30%) Net earnings $298,000 $ 32,800 202,000 234,800 77,316 157,484 140,516 63,800 76,716 23,015 $ 53,701 Assume that you have been asked to restate the financial statements to incorporate the LC&NRV inventory valuation rule. You have developed the following data relating to the ending inventory at December 31 of the current year: Acquisition Cost Net Realizable Item Quantity Unit Total Value ABCD 3,230 $4.80 $15,504 $5.80 1,680 6.80 7,280 3.30 24,024 3,380 7.80 26,364 $77,316 11,424 5.30 5.30 5.80
Sales revenue SMART COMPANY Statement of Earnings (LC&NRV Basis) For the Year Ended December 31, Current Year Cost of sales: Beginning inventory Purchases Cost of goods available for sale Ending inventory Cost of sales Gross profit Operating expense Pretax earnings Income tax expense Net earnings $ 32,800 202,000 234,800 $ 298,000 298,000 63,800 234,200 $ 234,200 2. Compare and explain the LC&NRV effect on each amount that was changed in part 1. (Negative answers should be indicated by a minus sign.) Item Changed Effect Cost of sales Increased Gross profit Decreased Pretax earnings Decreased Income tax expense Decreased Ending inventory Decreased Net earnings Decreased Amount of Change
Transcribed Image Text:Sales revenue SMART COMPANY Statement of Earnings (LC&NRV Basis) For the Year Ended December 31, Current Year Cost of sales: Beginning inventory Purchases Cost of goods available for sale Ending inventory Cost of sales Gross profit Operating expense Pretax earnings Income tax expense Net earnings $ 32,800 202,000 234,800 $ 298,000 298,000 63,800 234,200 $ 234,200 2. Compare and explain the LC&NRV effect on each amount that was changed in part 1. (Negative answers should be indicated by a minus sign.) Item Changed Effect Cost of sales Increased Gross profit Decreased Pretax earnings Decreased Income tax expense Decreased Ending inventory Decreased Net earnings Decreased Amount of Change
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