Question

signment CALCULATOR MESSAGE MY INSTRUCTOR FULL SCREEN PRINTER VERSION BACK NEXT Exercise 22-4 Ivanhoe Company started operations on January 1, 2012, and has used the FIFO method of inventory valuation since its inception. In 2018, it decides to switch to the average-cost method. You are provided with the following information. Retained Earnings (Ending Balance) nder FIFO $93.900 57.800 2012 2013 2014 2015 2016 2017 Net Income Under FIFO Under Average Cost $99,300 $89,000 75,900 71,400 81,400 70,600 122,100 132,500 323,400 313,800 289,800 294,800 236,300 322,200 543,200 739,900 (a) What is the beginning retained earnings balance at January 1, 2014. If Ivanhoe prepares comparative financial statements starting in 2014? Retained earnings, January 1 (b) What is the beginning retained earnings balance at January 1, 2017. if Ivanhoe prepares comparative financial statements starting in 2017 Retained earnings, January 1 (c) What is the beginning retained earnings balance at January 1, 2018, if Ivanhoe prepares single period financial statements for 2018?

Answer 1

Computation of Retained Earnings using Average Cost method
Year	Net Income Average Cost Method	Net Income FIFO Method	Retained Earnings (Average Cost Method)	Retained Earnings (FIFO Method)
2012	$89,000	$99,300	$89,000	$99,300
2013	$71,400	$75,900	$160,400	$175,200
2014	$70,600	$81,400	$231,000	$256,600
2015	$132,500	$122,100	$363,500	$378,700
2016	$313,800	$323,400	$677,300	$702,100
2017	$294,800	$289,800	$972,100	$991,900
2018
We will answer the questions by using the values in the above
mentioned table
(a)
If the comparative financial statements are prepared starting
from 2014, the beginning balance of the inventory as on Jan 1,
2014 would have to restated at average cost and the resulting
adjustment would have to be made in the Retained earnings
Since, the beginning balance of inventory for 2014 is equal to the
ending balance of inventory for 2013,the net income of 2013 would be
restated and would be the net income derived through average cost
method
Retained earnings balance on Jan 1, 2014 would be as under:
Year	Net Income		Retained Earnings
2012	FIFO Method	$99,300	$99,300
2013	Average Cost	$71,400	$170,700
Answer
Retained earnings, January 1 2014			$170,700
(b)
If the comparative financial statements are prepared starting
from 2017, the beginning balance of the inventory as on Jan 1,
2017 would have to restated at average cost and the resulting
adjustment would have to be made in the Retained earnings
Since, the beginning balance of inventory for 2017 is equal to the
ending balance of inventory for 2016,the net income of 2016 would be
restated and would be the net income derived through average cost
method
Year	Net Income		Retained Earnings
2012	FIFO Method	$99,300	$99,300
2013	FIFO Method	$75,900	$175,200
2014	FIFO Method	$81,400	$256,600
2015	FIFO Method	$122,100	$378,700
2016	Average Cost	$313,800	$692,500
Answer
Retained earnings, January 1 2017			$692,500
(c.)
If the single period financial statements are prepared for 2018
the beginning balance of the inventory as on Jan 1,2018 would have
to be restated at average cost because in 2018 the and the company
has decided to switch to average cost method and the resulting
adjustment would have to be made in the Retained earnings
Since, the beginning balance of inventory for 2018 is equal to the
ending balance of inventory for 2017,the net income of 2017 would be
restated and would be the net income derived through average cost
method
Year	Net Income		Retained Earnings
2012	FIFO Method	$99,300	$99,300
2013	FIFO Method	$75,900	$175,200
2014	FIFO Method	$81,400	$256,600
2015	FIFO Method	$122,100	$378,700
2016	FIFO Method	$323,400	$702,100
2017	Average Cost	$294,800	$996,900
Answer
Retained earnings, January 1 2018			$996,900
(d)
If the comparative financial statements are prepared starting
from 2015, the beginning balance of the inventory as on Jan 1,
2015 would have to restated at average cost and the resulting
adjustment would have to be made in the Retained earnings
Hence, the Net incomes starting from the year 2015 would be the
net income derived under the average cost method
Answer
		2015	2016	2017
Net Income		$132,500	$313,800	$294,800