Required information [The following information applies to the questions displayed below.] 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 (358) Net income $290,000 $ 34,000 194,000 228,000 63,300 164,700 125,300 63,000 62,300 21,805 $ 40,495 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 3,150 $4.00 $ 12,600 $ 5.00 B 1,600 6.00 C 7,200 2.50 9,600 18,000 4.50 D 3,300 7.00 23,100 4.50 5.00 $ 63,300 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.) Sales revenue JAFFA COMPANY Income Statement (Corrected) For the Year Ended December 31, Current Year Cost of goods sold: Beginning inventory Purchases 34,000 194,000 Goods available for sale 228,000 Ending inventory 63,300 Cost of goods sold Gross profit Operating expenses Pretax income Income tax expense Net income $ 290,000 164,700 125,300 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 Cost or NRV Amount of Change (Decrease) Ending inventory Cost of goods sold Gross profit Pretax income Income tax expense Net income