Make the retained earnings statement

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Problem - Presented below are income statements prepared on a LIFO and FIFO basis for Sage Company, which started operations on January 1, 2016. The company presently uses the LIFO method of pricing its inventory and has decided to switch to the FIFO method in 2017. The FIFO income statement is computed in accordance with the requirements of GAAP. Sage's profit-sharing agreement with its employees indicates that the company will pay employees 10% of income before profit-sharing. Income taxes are ignored.


LIFO Basis

FIFO Basis


2017

2016

2017

2016

Sales

$3,090

$3,090

$3,090

$3,090

Cost of goods sold

1,150

1,030

1,080

930

Operating expenses

1,000

1,000

1,000

1,000

Income before profit-sharing

940

1,060

1,010

1,160

Profit-sharing expense

94

106

111

106

Net income

$846

$954

$899

$1,054

Required -

1. If comparative income statements are prepared, what net income should Sage report in 2016 and 2017?

2. Assume that Sage has a beginning balance of retained earnings at January 1, 2017, of $954 using the LIFO method. The company declared and paid dividends of $520 in 2017. Make the retained earnings statement for 2017, assuming that Sage has switched to the FIFO method.

Reference no: EM132449607

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