Tulip Company decided to change from LIFO to FIFO inventory costing, effective January 1, 2018. The following data were available:
?
?
Excess of FIFO
?
?
Ending Inventory
?
Pretax Operating
over LIFO
Year
Income using LIFO
Ending Inventory
2018
$40,000
$8,000
2017
20,000
7,000
2016
30,000
4,000
The income tax rate is 35%. The company began operations on January 1, 2016, and has paid no dividends since inception.
?
Required:
Answer the following questions relating to the 2017-2018 comparative financial statements.
a.What is net income for 2018?b.What is restated net income for 2017?c.Prepare the 2017 statement of retained earnings as it would appear in the comparative 2017-2018 financial statements.
What will be an ideal response?
Reminder: The change in cost of goods sold resulting from the switch from LIFO to FIFO in any given year equals the change in the excess ending inventory from the end of the previous year to the end of the current year.?
| a. | $26,650 | {[$40,000 + ($8,000-$7,000)]´(1-.35)} | |
| ? | ? | ? | |
| b. | $14,950 | {[$20,000 + ($7,000-$4,000)]´(1-.35)} | |
| ? | ? | ? | |
| c. | January 1, 2017, retained earnings as reported (using LIFO) | ? | |
| ? | [(1-.35)´$30,000] | $19,500 | |
| ? | Add: Adjustment for accounting change from LIFO to FIFO | ? | |
| ? | (net of tax) [(1-.35)´$4,000] | 2,600 | |
| ? | January 1, 2017, retained earnings (restated) | $22,100 | |
| ? | Add: 2017 net income (restated) (see requirement 2) | 14,950 | |
| ? | December 31, 2017, retained earnings (restated) | $37,050 | |
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