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: $292,000 Sales revenue Cost of goods sold Beginning inventory $ 34,200 Purchases 196,000 Goods available for 230,200 sale Ending inventory 59,966 (FIFO cost) Cost of goods sold Gross profit Operating expenses Pretax income Income tax expense (30%) Net income 170,234 121,766 63,200 58,566 17,570 $ 40,996 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 Unit Total A B D Quantity 3,170 1,620 7,220 3,320 $4.20 3.70 3.70 4.20 $13,314 5,994 26,714 13,944 $59,966 Net Realizable Value Per Unit $3.20 5.20 1.70 6.20 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 Cost of goods sold: Goods available for sale 0 Cost of goods sold Pretax income P7-6 Part 2 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 Amount of Cost or Change NRV (Decrease) Ending inventory Cost of goods sold Gross profit Pretax income Income tax expense Net income