1. Cherry Falls Inc. (CFI) sells RedSoxbaseball hats. CFI uses theperpetualmethod of accounting for inventory, and the gross method for recording sales discounts. CFI preparesmonthlyfinancial statements. CFI is preparing financial statements at 9/30. The inventory cost at September 30 is $1,200. Because the RedSoxare in the World Series, CFI determines that the Net RealizableValue is $2,000. What is the effect on net income for this transaction? Note: if the event would NOT cause recognition of revenue or expense then select A:No effect on net income.

   A.	No effect on net income
   B.	Decrease net income
   C.	Increase net income