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P7-5 (Algo) Evaluating the Income Statement and Cash Flow Effects of Lower of Cost or Net Realizable Value LO7-4 Jaffa Company prepared its annual financial
P7-5 (Algo) Evaluating the Income Statement and Cash Flow Effects of Lower of Cost or Net Realizable Value LO7-4 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 Goods available for sale Ending inventory (FIFO cost) Cost of goods sold Gross profit Operating expenses Pretax income Income tax expense (35%) Net income Item A B C D Quantity 3,120 1,570 7,170 3,270 $33,700 191,000 224,700 58,176 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: Unit $3.70 5.70 2.20 6.70 Acquisition Cost Total $11,544 $287,000 8,949 15,774 21,909 $58,176 166,524 120,476 62,700 57,776 20,222 $37,554 Net Realizable Value Per Unit $4.70 4.20 4.20 4.70
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