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PA7-2 Evaluating the Income Statement and Income Tax Effects of Lower of Cost or Market...

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PA7-2 Evaluating the Income Statement and Income Tax Effects of Lower of Cost or Market [LO 7-4] 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 ncome statement follows: Sales Revenue Cost of Goods Sold 5120,000 Beginning Inventory 510,000 81.000 Goods Available for Sale Ending Inventory (FIFO cost) 91,000 18.800 Cost of Goods Sold 72.200 Gross Profit Operating Expenses 47,800 26,000 21,800 6,540 Income from Operations Income Tax Expense (30%) Net Income 5 15.260 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 Purchase Cost ltem antity Per Unit Total Market Value per Unit 2,500 650 2,500 2.500 52.00 2.00 1.00 4.00 5 5,000 1.300 2,500 10,000 53.00 1.00 0.50 2.00 518,800

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