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: $296,000 $ 34,600 200,000 234,600 66,794 Sales revenue Cost of goods sold Beginning inventory Purchases Goods available for sale Ending inventory (FIFO cost) Cost of goods sold Gross profit Operating expenses Pretax income Income tax expense (35%) Net income 167, 806 128, 194 63,600 64,594 22,608 $ 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: Item A B D Quantity 3,210 1,660 7,260 3,360 Unit $4.60 4.10 4.19 4.60 Acquisition Cost Total $ 14,766 6,806 29,766 15,456 $ 66,794 Net Realizable Value Per Unit $ 3.60 5.60 2.10 6.60 P7-6 Part 1 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 Year Sales revenue $ 296,000 Cost of goods sold: Beginning inventory 34,600 200,000 Purchases Goods available for sale 234,600 Ending inventory 66,794 X Cost of goods sold Gross profit Operating expenses 167,806 128,194 X 63,600 Pretax income 64,594 22,608 Income tax expense Net income $ 41,986