Question

Presented below are income statements prepared on a LIFO and FIFO basis for Cullumber Company, which started operations on January 1, 2019. The company presently uses the LIFO method of pricing its inventory and has decided to switch to the FIFO method in 2020. The FIFO income statement is computed in accordance with the requirements of GAAP. Cullumber’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 2020 2019 2020 2019 Sales Cost of goods sold $3,070 $3,070 1,090 990 970 970 $3,070 $3,070 1.090 970 970 970 Operating expenses Income before profit-sharing 1,010 1,110 1,010 1.130 Profit-sharing expense 101 111 103 111 Net income $909 $999 $907 $1,019 Answer the following questions.

Answer 1

Answer with explanation is given below

$999 CULLUMBER COMPANY Retained Earnings Statement Retained earnings January 1, as reported Cumulative effect of Change to FIFO Retained earnings January 1, adjusted Add: Net Income Less: Dividends Retained Earnings December 31 $20 ($1,019-$999) $1,019 $907 As per FIFO -$520 $1,406 Explanation: Opening retained earnings is increased by $20 since due to FIFO in 2019 higher income would have been reported and led to higher retained earnings