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 Cost of goods sold Beginning inventory Purchases $300,000 $33,000 184,000 Goods available for sale 217,000 Ending inventory (FIFO cost) 50,450 Cost of goods sold 166,550 Gross profit 133,450 Operating expenses 62,000 Pretax income 71,450 Income tax expense (30%) 21,435 Net income $50,015 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 Net Realizable Item Quantity Unit Total Value Per Unit A 3,050 $3.0 $9,150 $4.0 B 1,500 5.5 8,250 3.5 C 7,100 1.5 10,650 3.5 D 3,200 7.0 22,400 $50,450 4.0 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. 2. Compare the lower of cost or net realizable value effect on each amount that was changed on the income statement in requirement (1). Complete this question by entering your answers in the tabs below. Req 1 Req 2 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. JAFFA COMPANY Income Statement (Corrected) For the Year Ended December 31, Current Year Sales revenue Cost of goods sold Beginning inventory Purchases: Goods available for sale Ending inventory Cost of goods sold Gross profit Operating expenses Pretax income Income tax expense Net income $ 33,000 184,000 217,000 $ 300,000 Req 2 > Req 1 Req 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.) Item Changed Ending inventory Cost of goods sold Gross profit Pretax income Income tax expense Net income FIFO Cost Basis Lower of Cost or NRV Amount of Change (Decrease) Reg 1