FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Concept explainers

Inventory Valuation
Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in…
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Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compare and explain the LCM/NRV effect on each amount in the income statement that was changed in requirement 1. (Decreases should be indicated by a minus sign.) Amount of LCM/NRV Basis FIFO Cost Item Changed Increase Basis (Decrease) Ending Inventory $ 131,900 Cost of Goods Sold $ 104,100 Gross Profit Income from Operations 122,900 Income Tax Expense $ 36,870 Net Income $ 86,030 < Required 1 Required 2 >
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Transcribed Image Text:Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compare and explain the LCM/NRV effect on each amount in the income statement that was changed in requirement 1. (Decreases should be indicated by a minus sign.) Amount of LCM/NRV Basis FIFO Cost Item Changed Increase Basis (Decrease) Ending Inventory $ 131,900 Cost of Goods Sold $ 104,100 Gross Profit Income from Operations 122,900 Income Tax Expense $ 36,870 Net Income $ 86,030 < Required 1 Required 2 >
Smart Company prepared its annual financial statements dated December 31. The company reported its inventory using the FIFO inventory costing method and failed to evaluate its net realizable value at December 31. The preliminary income statement follows: Sales Revenue Cost of Goods Sold $296,000 $ 38,000 198,000 236,000 131,900 Beginning Inventory Purchases Goods Available for Sale Ending Inventory Cost of Goods Sold 104,100 191,900 69,000 122,900 36,870 $ 86,030 Gross Profit Operating Expenses Income from Operations Income Tax Expense (30%) Net Income Assume you have been asked to restate the financial statements to incorporate LCM/NRV. You have developed the following data relating to the ending inventory: Purchase Cost Item Quantity Per Unit 2,700 1,700 7,800 3,400 Net Realizable Value per Unit $ 9 3 Total $ 21,600 8,500 78,000 23,800 $131,900 $ 8 10 12 7 4 ABCD
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Transcribed Image Text:Smart Company prepared its annual financial statements dated December 31. The company reported its inventory using the FIFO inventory costing method and failed to evaluate its net realizable value at December 31. The preliminary income statement follows: Sales Revenue Cost of Goods Sold $296,000 $ 38,000 198,000 236,000 131,900 Beginning Inventory Purchases Goods Available for Sale Ending Inventory Cost of Goods Sold 104,100 191,900 69,000 122,900 36,870 $ 86,030 Gross Profit Operating Expenses Income from Operations Income Tax Expense (30%) Net Income Assume you have been asked to restate the financial statements to incorporate LCM/NRV. You have developed the following data relating to the ending inventory: Purchase Cost Item Quantity Per Unit 2,700 1,700 7,800 3,400 Net Realizable Value per Unit $ 9 3 Total $ 21,600 8,500 78,000 23,800 $131,900 $ 8 10 12 7 4 ABCD
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