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:

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:

Required:
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.

Transcribed Image Text:

Sales Revenue Cost of Goods Sold $140,000 15,000 91,000 106,000 22,000 Beginning Inventory Purchases Goods Available for Sale Ending Inventory (FIFO cost) Cost of Goods Sold Gross Profit Operating Expenses Income from Operatons Income Tax Expense (30%) Net Income 24,000 56,000 31.000 25,000 7.500 $ 17,500 Purchase Cost Item Quantity 1.500 750 3,500 1.500 Per Unit Total $ 4,500 3.000 7,000 7.500 $22,000 Market Value per Unit $4