Reference no: EM132492986

During 2016 (its first year of operations) and 2017, Batali Foods used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2018, Batali decided to change to the average method for both financial reporting and tax purposes.

Income components before income tax for 2018, 2017, and 2016 were as follows ($ in millions):

                                                     2018              2017               2016

Revenues                                 $590             $560             $550

Cost of goods sold (FIFO)            (63)               (57)                (55)

Cost of goods sold (average)            (96)          (90)                   (86)

Operating expenses                        (322)            (318)                (310)

• Dividends of $36 million were paid each year. Batali's fiscal year ends December 31.

Required:

Question 1: Determine the balance in retained earnings at January 2017 as Batali reported using FIFO method and determine the adjustment of balance in retained earnings as on January 2017 using average method instead of FIFO method Also include the adjustment amount between those two numbers.