Smart Company prepared its annual financial statements dated December 31 of the current year. The company...

 

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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 (40%) Net earnings Item Quantity A 3,080 B C D Unit Total $3.30 $10,164 1,530 5.30 8,109 7,130 1.80 12,834 3,230 6.30 20,349 $51,456 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: Sales revenue Cost of sales: Beginning inventory Purchases Acquisition Cost Cost of goods available for sale Ending inventory Cost of sales Item Changed Required: 1. Restate the statement of earnings to reflect the valuation of the ending inventory on December 31 of the current year, at the LC&NRV. Apply the LC&NRV rule on an item-by-item basis. Net Realizable Value $4.30 3.80 3.80 4.30 SMART COMPANY Statement of Earnings (LC&NRV Basis) For the Year Ended December 31, Current Year $ 31,300 187,000 O Increased Decreased O No effect 218,300 51,456 No effect O Decreased O Increased Effect $ 31,300 187,000 218,300 $283,000 166,844 116,156 62,300 53,856 21,542 $ 32,314 Amount of Change $ $ 283,000 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.) 283,000 283,000 283,000 3. This part of the question is not part of your Connect assignment. 4-a. What effect (increase, decrease, no effect) did the LC&NRV rule have on the cash flow for the current year? 4-b. What will be the long-term effect on cash flow (increase, decrease, no effect)? 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 (40%) Net earnings Item Quantity A 3,080 B C D Unit Total $3.30 $10,164 1,530 5.30 8,109 7,130 1.80 12,834 3,230 6.30 20,349 $51,456 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: Sales revenue Cost of sales: Beginning inventory Purchases Acquisition Cost Cost of goods available for sale Ending inventory Cost of sales Item Changed Required: 1. Restate the statement of earnings to reflect the valuation of the ending inventory on December 31 of the current year, at the LC&NRV. Apply the LC&NRV rule on an item-by-item basis. Net Realizable Value $4.30 3.80 3.80 4.30 SMART COMPANY Statement of Earnings (LC&NRV Basis) For the Year Ended December 31, Current Year $ 31,300 187,000 O Increased Decreased O No effect 218,300 51,456 No effect O Decreased O Increased Effect $ 31,300 187,000 218,300 $283,000 166,844 116,156 62,300 53,856 21,542 $ 32,314 Amount of Change $ $ 283,000 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.) 283,000 283,000 283,000 3. This part of the question is not part of your Connect assignment. 4-a. What effect (increase, decrease, no effect) did the LC&NRV rule have on the cash flow for the current year? 4-b. What will be the long-term effect on cash flow (increase, decrease, no effect)?

Answer rating: 100% (QA)

1 Restating the statement of earnings to reflect the valuation of the ending inventory on December 3... View the full answer