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				$	296,000
Cost of goods sold
Beginning inventory	$	34,600
Purchases		200,000
Goods available for sale		234,600
Ending inventory (FIFO cost)		66,794
Cost of goods sold					167,806
Gross profit					128,194
Operating expenses					63,600
Pretax income					64,594
Income tax expense (35%)					22,608
Net income				$	41,986

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	3,210	$	4.60	$	14,766	$	3.60
B	1,660		4.10		6,806		5.60
C	7,260		4.10		29,766		2.10
D	3,360		4.60		15,456		6.60
				$	66,794

Required:

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.)

JAFFA COMPANY

Income Statement (Corrected)

For the Year Ended December 31,

Current YearCost of goods sold:

Goods available for sale

Cost of goods sold

Pretax income

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.)

Item Changed	FIFO Cost Basis	Lower of Cost or NRV	Amount of Change (Decrease)
Ending inventory
Cost of goods sold
Gross profit
Pretax income
Income tax expense
Net income