Management is quite concerned about the loss that is projected for the third year of the expan$-$ sion $($the current year$).$ The president has scheduled a meeting with the local bank to review the firm$$s current financial performance. This bank has been lending the firm the capital to finance the production expansion.

Required:

a$.$ Instead of writing off all the warehousing and oak barrel costs, prepare revised income state$-$

ments for years $1$ through $3,$ treating the warehousing and barrel costs as product costs.

b$.$ Which set of income statements $($those given or the ones you prepared$)$ should the presi$-$

dent show the bank at the meeting? Justify your answer.