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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).

Financial Accounting
Financial Accounting
15th Edition
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Carl Warren, James M. Reeve, Jonathan Duchac
Chapter6: Accounting For Merchandising Businesses
Section: Chapter Questions
Problem 36E: The following data were extracted from the accounting records of Harkins Company for the year ended...
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Vikram Bhai 

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).
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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