Question

Problem 22-1 The management of Cheyenne Instrument Company had concluded, with the concurrence of its independent auditors, that results of operations would be more fairly presented if Cheyenne changed its method of pricing inventory from last-in, first-out (LIFO) to average-cost in 2017. Given below is the 5-year summary of income under LIFO and a schedule of what the inventories would be if stated on the average-cost method.

Answer 1

2016 18,270 2017 18,890 $ $ 1,520 Cheyenne Instrument Company Statement of Income and Retained Earnings For the Years ended May 31 Recast - using Average Cost Method of Inventory Valuation as opposed to LIFO 2013 2014 2015 Sales - Net $ 13,880 $ 15,620 $ 16,680 Cost of Goods sold Beginning Inventory 1,010 1,140 1,110 Purchases 12,940 13,780 15,140 Ending Inventory (1,140) (1,110) (1,250) Total 12,810 13,810 15,000 Gross Profit 1,070 1,810 1,680 Administrative expenses 700 760 830 Income before taxes 370 1,050 850 Income Taxes (50%) 185 525 425 Net Income 185 525 425 Retained Earnings-beginning As originally reported 1,200 1,375 1,855 Adjustment (1,000) (1,110) (990) As restated 1,010 1,140 1,110 Retained Earnings - ending 1,395 1,930 2,400 Weighted average number of shares 100 100 100 EPS $ 1.85 $ 5.25 $ 4.25 1,250 16,000 (1,520) 15,730 2,540 900 1,640 820 820 17,269 (1,700) 17,089 1,801 1,000 801 401 401 2,265 (1,100)| 1,250 3,235 100 8.20 $ 3,025 (1,250) 1,520 3,696 100 4.01 $

2 2015 2016 2017 16680 18270 18890 B C Cheyenne Instrument Company Statement of Income and Retained Earnings For the Years ended May 31 4 Recast - using Average Cost Method of Inventory Valuation as opposed to LIF 2013 2014 6 Sales - Net 13880 15620 7 Cost of Goods sold 8 Beginning Inventory 1010 1140 9 Purchases 12940 13780 10 Ending Inventory --C8 --D8 11 Total =SUM(B8:B10) =SUM(C8:C10) 12 Gross Profit =+B6-B11 =+C6-C11 13 Administrative expenses 700 14 Income before taxes =+B12-B13 =+C12-C13 15 Income Taxes (50%) =+B14*50% =+C14*50% 16 Net Income =+B14-B15 +C14-C15 17 Retained Earnings-beginning 18 As originally reported 1200 375 19 Adjustment -1000 -1110 20 As restated =+C8 21 Retained Earnings - ending =+B18+B19+B20+B16 =+C18+C19+C20+C16 22 Weighted average number of shares =175/1.75 -480/4.8 23 EPS =+B16/B22 =+C16/C22 24 1110 15140 --E8 =SUM(D8:D10) =+D6-D11 830 =+D12-D13 +D14*50% =+D14-D15 1250 16000 --F8 =SUM(E8:E10) =+E6-E11 1520 17269 -1700 =SUM(F8:F10) =+F6-F11 1000 =+F12-F13 =+F14*50% =+F14-F15 760 900 =+E12-E13 =+E14*50% =+E14-E15 2265 -1100 S+B8 1855 -990 =+D8 =+D18+D19+D20+D16 =410/4.1 =+D16/D22 =+E8 =+E18+E19+E20+E16 =760/7.6 =+E16/E22 3025 -1250 =+F8 =+F18+F19+F20+F16 =365/3.65 =+F16/F22