Granger Supply, Inc., has two main areas of inventory, industrial supplies and industrial cleaning equipment. The FIFO inventory method is used for industrial supplies, and the LIFO method is used

Granger Supply, Inc., has two main areas of inventory, industrial supplies and industrial cleaning equipment. The FIFO inventory method is used for industrial supplies, and the LIFO method is used for the cleaning equipment. Prior to considering special interim reporting modifications for LIFO liquidations and lower of cost or market, the company reported the following results for the first two quarters of the current year: Quarter 1        Quarter 2 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,000,000     $9,000,000 Cost of sales—industrial supplies . . . . . . . . . 4,300,000       4,700,000 Cost of sales—cleaning equipment . . . . . .. . 3,000,000       3,200,000 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,700,000     $1,100,000 Selling, general, and administrative . . . . . . . 2,100,000        1,800,000 Income before taxes . . . . . . . . . . . . . . . . . . .  . $ 2,600,000     $ (700,000) During the first quarter, the company experienced unprecedented demand for its cleaning equipment and as a result liquidated a significant portion of its beginning inventory of equipment. The cost of sales—cleaning equipment is based on the historical cost of the liquidated layers. Management anticipates that 400 units of beginning inventory that were included in cost of sales at $1,500 per unit will be replaced during the year and remain in ending inventory at a cost of $2,700 per unit. The cost of sales—industrial supplies does not reflect the fact that the ending inventory of supplies has a fair value of $120,000 less than FIFO cost. During the second quarter, the market for industrial supplies strengthened and the inventory of industrial supplies at the end of the second quarter had a fair value of only $25,000 less than FIFO cost. Interim income tax expense is based on the following estimates: At End of Quarter 1 At End of Quarter 2 Statutory tax rate Projected income before taxes for the balance of the year . . Annual deductions permanently disallowed for tax purposes Estimated annual tax credits . . . . . . . . 35% $5,100,000 $ 60,000 $ 18,000 35% $4,000,000 $ 35,000 $ 30,000 Prepare an income statement for each of the first two quarters of the current year. All supporting schedules should be in good form.

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