Question

Springer Anderson Gymnastics prepared its annual financial statements dated December 31. The company reported its inventory using the LIFO inventory costing method but did not compare the cost of its ending inventory to its market value (replacement cost). The preliminary income statement follows: $130,000 $12,50 86,000 Sales Revenue Cost of Goods Sold Beginning Inventory Purchases Goods Available for Sale Ending Inventory Cost of Goods Sold Gross Profit Operating Expenses Income from Operations Income Tax Expense (30%) Net Income 98,500 22.350 76.150 53.850 20.500 25,350 7.505 $ 17,745 Assume that you have been asked to restate the financial statements to incorporate the LCM/NRV rule. You have developed the following data relating to the ending inventory Purchase Cost Quantity 2,250 700 Per Unit $2.50 3.00 Total $ 5,625 2.100 Replacement Cost per Unit $3.50 1.50 10.125 $22,350

Answer 1

SPRINGER ANDERSON GYMNASTIC *LCM item by item basis acquisition cost per unit total market value per unit | total market value 1. Income statement (LCM basis) Item Qty f=b*e 130,000 A 2,250 700 3,000 2,250 2.50 3.00 1.50 4.50 d=b*c 5,625 2,100 4,500 10,125 22,350 3.50 1.50 0.75 2.50 LCM g=lower of d orf 5,625 1,050 2,250 5,625 14,550 7,875 1,050 2,250 5,625 16,800 12,500 86,000 98,500 14,550 C D total for the year ended December 31 sales revenue cost of goods sold beg inventory purchases goods available for sale ending inventory* cost of goods sold gross profit operating expense income from operation income tax expense at 30% net income 83,950 46,050 28,500 17,550 5,265 12,285 2.LCM effect item changed ending inventory cost of goods sold gross profit income from operation income tax expense net income LIFO cost basis 22,350 76,150 53,850 25,350 7,605 17,745 amount of increase LCM basis (decrease) 14,550 - 7,800 83.950 7.800 46,050 - 7,800 17,550 - 7,800 5,265 - 2,340 12,285 - 5,460 Sheet237 Sheet238 Sheet239 Sheet240 Sheet241 Sheet242 Sheet243 Sheet244 Sheet245