Springer Anderson Gymnastics prepared its annual financial statements dated December 31,

2012. The company used the FIFO inventory costing method, but it failed to apply LCM to the ending inventory. The preliminary 2012 income statement follows:

Assume that you have been asked to restate the 2012 financial statements to incorporate LCM. You have developed the following data relating to the 2012 ending inventory:

Required:
1. Restate the income statement to reflect LCM valuation of the 2012 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.
3. What is the conceptual basis for applying LCM to merchandise inventories?

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 84,000 56,000 31,000 25,000 7,500 $ 17,500 Gross Profit Operating Expenses Income from Operations Income Tax Expense (30%) Net Income Purchase Cost Current Replacement Cost per Unit (Market) Quantity 1,500 750 3,500 1,500 Per Unit Total $ 4,500 3,000 7,000 7,500 $22,000 Item