Exercise 22-4 Gordon Company started operations on January 1, 2009, and has used
ID: 2427672 • Letter: E
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.
Net Income
Retained Earnings
(Ending Balance)
Under FIFO
Under Average-Cost
Under FIFO
(a) What is the beginning retained earnings balance at January 1, 2011, if Gordon prepares comparative financial statements starting in 2011?
(b) What is the beginning retained earnings balance at January 1, 2014, if Gordon prepares comparative financial statements starting in 2014?
(c) What is the beginning retained earnings balance at January 1, 2015, if Gordon prepares single-period financial statements for 2015?
(d) What is the net income reported by Gordon in the 2014 income statement if it prepares comparative financial statements starting with 2012?
2012
2013
2014
Net Income
Retained Earnings
(Ending Balance)
Under FIFO
Under Average-Cost
Under FIFO
2009 $101,950 $92,430 $100,260 2010 70,970 65,350 159,880 2011 89,070 79,270 234,020 2012 119,150 129,170 339,590 2013 300,190 292,150 589,190 2014 304,210 310,910 779,930Explanation / Answer
Under FIFO Average Cost Retained earning Retained earnings under under FIFO Average Cost 2009 101950 92430 100260 90740 (100260+92430-101950) 2010 70970 65350 159880 85120 (90740+65350-70970) 2011 89070 79270 234020 75320 (85120+79270-89070) 2012 119150 129170 339590 85340 (75320+129170-119150) 2013 300190 292150 589190 77300 (85340+292150-300190) 2014 304210 310910 779930 84000 (77300+310910-304210) a. Retained Earnings will be 85120 b. Retained Earnings will be 77300 c Retained Earnings will be 84000 d Net Income 2012 129170 2013 292150 2014 310910
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