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.) Item Changed FIFO Cost Basis Lower of Cost or NRV Amount of Change (Decrease) Ending inventory Cost of goods sold Gross profit Pretax income Income tax expense Net income Chap. 7 - Problems A Saved 10 Part 2 of 2 Required information P7-6 (Static) Evaluating the Income Statement and Cash Flow Effects of Lower of Cost or Net Realizable Value LO7-4 (The following information applies to the questions displayed below.) 10 points 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: Skipped $300,000 eBook $ 33,000 184,000 217,000 50,450 Print Em D 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 (308) Net income 166,550 133,450 62,000 71,450 21,435 $ 50,015 References 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 A B Quantity 3,050 1,500 7,100 3,200 Unit $ 3.0 5.5 1.5 7.0 Total $ 9, 150 8,250 10,650 22,400 $ 50,450 Net Realizable Value Per Unit $ 4.0 3.5 3.5 4.0 D