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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
Sales
$3,090
Cost of goods sold
1,150
1,030
1,080
930
Operating expenses
1,000
Income before profit-sharing
940
1,060
1,010
1,160
Profit-sharing expense
94
106
111
Net income
$846
$954
$899
$1,054
Answer the following questions.
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. Prepare the retained earnings statement for 2017, assuming that Sage has switched to the FIFO method.
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