Exercise 22-4 Gordon Company started operations on January 1, 2009, and has used

Question

Exercise 22-4 Gordon Company started operations on January 1, 2009, and has used the FIFO method of inventory valuation since its inception. In 2014, it decides to switch to the average cost method. You are provided with the following information. Retained Earnings (Ending Balance) Net Income 2009 2010 2011 2012 2013 2014 $101,760 69,620 90,090 120,330 300,580 305,860 0 $91,760 65,780 80,600 130,330 292,550 310,000 $100,440 159,600 235,760 339,200 590,630 779,080 (a) What is the beginning retained earnings balance at January 1, 2011, if Gordon prepares comparative financial statements starting in 2011? Retained earnings, January 1 (b) What is the beginning retained earnings balance at January 1, 2014, if Gordon prepares comparative financial statements starting in 2014? Retained earnings, January 1 (c) What is the beginning retained earnings balance at anuary 1, 2015, if Gordon prepares single-period financial statements for 2015? Retained earnings, January 1 (d) What is the net income reported by Gordon in the 2014 income statement if it prepares comparative financial statements starting with 2012? 173440 Net Income s

Explanation / Answer

Answer a. Retained earning- Jan 1, 2011          159,660 Cummulative effect of change in Accounting Principle to average cost - (92910 -100150) + (64600-70540)          (13,180) Retained earning- Jan 1, 2011 Adjsuted          146,480 Answer b. Retained earning- Jan 1, 2014          589,150 Cummulative effect of change in Accounting Principle to average cost - (92910 -100150) + (64600-70540) + (79230-89440) + (129540 - 119900) + (293160 - 299,930)          (20,520) Retained earning- Jan 1, 2014 Adjsuted          568,630 Answer c. Retained earning- Jan 1, 2015          780,080 Cummulative effect of change in Accounting Principle to average cost - (92910 -100150) + (64600-70540) + (79230-89440) + (129540 - 119900) + (293160 - 299,930) + (309930 - 305280)          (15,870) Retained earning- Jan 1, 2015 Adjsuted          764,210 Answer d. 2012 2013 2014 Net Income    130,330.00    292,550.00    310,000.00

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