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		$300,000
Cost of goods sold
Beginning inventory	$33,000
Purchases	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
Item	Quantity	Unit	Total	Net Realizable 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	4.0
			$50,450

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).