1. Prepare the income statement to reflect LCM valuation of the current year end
ID: 2338329 • Letter: 1
Question
1. Prepare the income statement to reflect LCM valuation of the current year ending inventory Apply LCM on an item-by-tem basis (Round your answers to nearest d JAFFA COMPANY Income Statement (LCM basis) For the Year Ended December 31, Current Year Required Information Jaffa Company prepared its annual financial stotements dated December 31 of the current year The company applies the FIFO inventory costing method, however the company neglected to apply LCM to the ending inventory The preliminary current year income statement follows Sales revenue Cost of goods sold Beginning inventory Purchases Goods available for sale Beginning inventory Ending inventory Cost of goods sold Sales revenue $293.000 Cost of gooos sold Beginning inventory Purchases Goods avalilable for sale Ending inventory FirO cost Cost of goods sold 34.300 97000 231,300 61661 Operating expenses retax income 69.639 123,361 63.300 0.06 21021 Income tax expense Net income Gross proft Operating expenses Pretax income income tax expense (35 Net income 5 39.040Explanation / Answer
Applying the inventory as per LCM as Below item quantity(1) unit cost net realisable value rate as per LCM(2) LCM Valuation(a*b) A 3180 4.3 3.3 3.3 10494 B 1630 3.8 5.3 3.8 6194 C 7230 3.8 1.8 1.8 13014 D 3330 4.3 6.3 4.3 14319 44021 Income Statement Particulars Amount Amount sales 293000 cost of goods sold beginning inventory 34300 add: purchase 197000 goods available for sale 231300 less: inventory at the end -44021 cost of goods sold 187279 Gross Profit 105721 less: operating expenses 63300 pretax income 42421 less: income tax exp 42421*35% 14847 net income 27574 By applying LCM Rule the value of inventory decease from 61661 to 44021 by 17640 cost of goods sold increased from 169639 to 187279 by 17640 Gross profit by decrease by 17640 i.e (123361-105721) pretax income (60061-42421) = 17640 income tax expenses (21021-14847) = 6174
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