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.)
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.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![[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
$290,000
Cost of goods sold
Beginning inventory
$ 34,000
194,000
228,000
Purchases
Goods available for sale
63,300
Ending inventory (FIFO cost)
Cost of goods sold
Gross profit
Operating expenses
Pretax income
164,700
125,300
63,000
62,300
21,805
$ 40,495
Income tax expense (35%)
Net income
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
Net Realizable
Item
Quantity
Unit
Total
Value Per Unit
$ 5.00
$ 12,600
9,600
18,000
A
3,150
$ 4.00
1,600
7,200
B
6.00
4.50
C
2.50
4.50
D
3,300
7.00
23,100
5.00
$ 63,300](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F66e8a441-1535-4b77-8170-ec0b022e4104%2F2b212527-1096-4fde-abb9-393bbbafddcb%2F13ub11o_processed.png&w=3840&q=75)
Transcribed Image Text:[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
$290,000
Cost of goods sold
Beginning inventory
$ 34,000
194,000
228,000
Purchases
Goods available for sale
63,300
Ending inventory (FIFO cost)
Cost of goods sold
Gross profit
Operating expenses
Pretax income
164,700
125,300
63,000
62,300
21,805
$ 40,495
Income tax expense (35%)
Net income
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
Net Realizable
Item
Quantity
Unit
Total
Value Per Unit
$ 5.00
$ 12,600
9,600
18,000
A
3,150
$ 4.00
1,600
7,200
B
6.00
4.50
C
2.50
4.50
D
3,300
7.00
23,100
5.00
$ 63,300
Transcribed Image Text: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.)
Amount of
FIFO Cost
Lower of Cost
Item Changed
or NRV
Change
(Decrease)
Basis
Ending inventory
Cost of goods sold
Gross profit
Pretax income
Income tax expense
Net income
Expert Solution
Step 1
FIFO Cost basis of inventory valuation means inventory has been valued on a first-in, first-out basis which means the cost of the latest purchased inventory is taken to calculate ending inventory.
Lower of cost or NRV is a method of reporting the inventory.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education