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 reliminary 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 (30%) Net income $ 33,400 $ 305,000 187,600 221,000 50,950 170,050 134,950 63,000 71,950 21,585 $ 50,365 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 ABCD Quantity 3,075 Unit Total Value Per Unit $3.00 $9,225 $4.00 1,510 5.50 8,305 3.50 7,160 3,240 1.50 10,740 3.50 7.00 22,680 $50,950 4.00 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. 2. Compare the lower of cost or net realizable value effect on each amount that was changed on the income statement in requirement (1).
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 reliminary 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 (30%) Net income $ 33,400 $ 305,000 187,600 221,000 50,950 170,050 134,950 63,000 71,950 21,585 $ 50,365 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 ABCD Quantity 3,075 Unit Total Value Per Unit $3.00 $9,225 $4.00 1,510 5.50 8,305 3.50 7,160 3,240 1.50 10,740 3.50 7.00 22,680 $50,950 4.00 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. 2. Compare the lower of cost or net realizable value effect on each amount that was changed on the income statement in requirement (1).
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Vikram Bhai
Transcribed Image Text: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
$ 305,000
$ 33,400
187,600
221,000
50,950
170,050
134,950
63,000
71,950
21,585
$ 50,365
Income tax expense (30%)
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
ABCD
Quantity
3,075
1,510
Unit
Total
Value Per Unit
$3.00
$9,225
$4.00
5.50
8,305
3.50
7,160
3,240
1.50
10,740
3.50
7.00
22,680
$50,950
4.00
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.
2. Compare the lower of cost or net realizable value effect on each amount that was changed on the income statement in
requirement (1).
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