The following excerpt is adapted from a SECs cease-and-desist proceeding. For its FY11 year-end financial close process,

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The following excerpt is adapted from a SEC’s cease-and-desist proceeding.

For its FY11 year-end financial close process, LOGI recorded a $2.2M impairment loss for its inventory (50,000 units) based on an assessment that the net realizable value of the inventory is $249 per unit. The company’s income tax rate is 20%.

Suppose you, as an experienced analyst covering LOGI, believe the net realizable value of the inventory should be $219 per unit and plan to adjust accordingly. What is the impact of your adjustments on LOGI’s financial statements? In your answers, you need to

(a) Quantify the adjustment (i.e., calculate numerical figures of the impact)

(b) Clearly indicate whether an adjustment is an increase (+) or decrease (−) to a balance sheet or income statement account.