Question

Jaffa Company prepared its annual financial statements dated December 31 of the current year. The company applies the FIFO inventory costing method; however, the company neglected to apply lower of cost or net realizable value to the ending inventory. The preliminary current year income statement follows:

Sales revenue				$	294,000
Cost of goods sold
Beginning inventory	$	34,400
Purchases		198,000
Goods available for sale		232,400
Ending inventory (FIFO cost)		63,364
Cost of goods sold					169,036
Gross profit					124,964
Operating expenses					63,400
Pretax income					61,564
Income tax expense (40%)					24,626
Net income				$	36,938

Assume that you have been asked to restate the current year financial statements to incorporate lower of cost or NRV. You have developed the following data relating to the current year ending inventory:

		Acquisition Cost
Item	Quantity	Unit		Total		Net Realizable Value Per Unit
A	3,190	$	4.40	$	14,036	$	3.40
B	1,640		3.90		6,396		5.40
C	7,240		3.90		28,236		1.90
D	3,340		4.40		14,696		6.40
				$	63,364
1. Prepare the income statement to reflect lower of cost or net realizable value valuation of the current year ending inventory. Apply lower of cost or NRV on an item-by-item basis. (Round your answers to nearest dollar amount.) 2. Compare the lower of cost or net realizable value effect on each amount that was changed on the income statement in requirement (1). (Decreases should be indicated by a minus sign.)(Round your answers to nearest dollar amount.)

Answer 1