Evaluating the Income Statement and Income Tax Effects of Lower of Cost or Market Mondetta Clothing 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:
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:
1. Restate the income statement to reflect LCM valuation of the ending inventory. Apply LCM on an item-by-item basis and show computations.
2. Compare and explain the LCM effect on each amount that was changed in requirement 1.

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