eztomt educationcomhmtpx 2 2500 points PB72 Evaluating the

(- ? ezto.mt education.com/hm.tpx 2. 25.00 points PB7-2 Evaluating the Income Statement and Income Tax Effects of Lower of Cost or Market [LO 7-4 Mondetta Clothing 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 income statement follows: Net Sales Cost of Goods Sold S 430,000 Beginning Inventory Purchases $ 47,500 278,000 325,500 Ending Inventory (FIFO cost)84,000 Goods Available for Sale Cost of Goods Sold 241,500 Gross Profit Operating Expenses 188,500 95,500 Income from Operations Income Tax Expense (40%) 93,000 37,200 Net Income $ 55,800 Assume that you have been asked to restate the financial statements to incorporate LCM. You have

Solution

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Working:

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MONDETTA CLOTHING
Income Statement (LCM basis)
For the Year Ended December 31
Net sales		430000
Cost of goods sold:
Beginning inventory	47500
Purchases	278000
Goods available for sale	325500
Ending inventory	67375
Cost of goods sold		258125
Gross profit		171875
Operating expenses		95500
Income from operations		76375
Income tax expense		30550
Net income		45825