Prepare the retained earnings statement

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Question - Presented below are income statements prepared on a LIFO and FIFO basis for Sweet 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. Sweet'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

$2,970

$2,970

$2,970

$2,970

Cost of goods sold

1,120

970

1,060

920

Operating expenses

970

970

970

970

Income before profit-sharing

880

1,030

940

1,080

Profit-sharing expense

88

103

99

103

Net income

$792

$927

$841

$977

Answer the following questions.

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

2. Assume that Sweet has a beginning balance of retained earnings at January 1, 2017, of $927 using the LIFO method. The company declared and paid dividends of $530 in 2017. Prepare the retained earnings statement for 2017, assuming that Sweet has switched to the FIFO method.

Reference no: EM132448018

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