The management of Utrillo Instrument Company had concluded, with the concurrence
ID: 2457304 • Letter: T
Question
The management of Utrillo Instrument Company had concluded, with the concurrence of its independent auditors, that results of operations would be more fairly presented if Utrillo changed its method of pricing inventory from last-in, first-out (LIFO) to average-cost in 2014. 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.
Prepare comparative statements for the 5 years, assuming that Utrillo changed its method of inventory pricing to average-cost. Indicate the effects on net income and earnings per share for the years involved. Utrillo Instruments started business in 2009.
UTRILLO INSTRUMENT COMPANY STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED MAY 31 2010 2011 2012 2013 2014 Sales-net $13,931$15,224 $16,660 $18,206 $19,380 Cost of goods sold 1,010 1,080 1,003 1,101 1,234 12,976 13,494 14,796 15,829 17,075 (1,080) (1,003) (1,101) (1,234) (1,377) 14,698 1,962 Boginningy inveniory Purchases Ending inventory Total Gross profit Administrative expenses Income before taxes Income taxes (50%) Net income Retaind sarnings- boinnin Reiai":xl oarnings-onding Earnings per share 12,906 1,025 776 249 125 124 11: $1,339 $1.24 13,571 1,653 747 906 453 453 15,696 2,510 916 1,594 797 797 1,7922,369 ?3,1.66 $7.97 16,932 2,448 975 1,473 737 736 3,166 ?3,902 $7.36 1,962 808 1,154 577 577 1,339 ?2,369 $5.77 $1,792 $4.53Explanation / Answer
2010 2011 2012 2013 2014 Sales-Net 13,931 15,224 16,660 18,206 19,380 Cost of Goods Sold Beginning Inventory 1,020 1,109 1,084 1,255 1,476 Purchases 12,976 13,494 14,796 15,829 17,075 Ending Inventory -1,109 -1,084 -1,255 -1,476 -1,681 Total 12,887 13,519 14,625 15,608 16,870 Gross Profit 1,044 1,705 2,035 2,598 2,510 Administartive Exp -776 -747 -808 -916 -975 Income Before Taxes' 268 958 1,227 1,682 1,535 Income Tax @ 50% 134 479 613.5 841 767.5 Net Income' 134 479 614 841 768 Retianed Earnings -Beginning As originally reported 1,215 1,339 1,792 2,369 3,166 Adjusted 10 26 37 44 32 As restated 1,225 1,365 1,829 2,413 3,198 Retained Earnings _Ending 1,359 1,844 2,442 3,254 3,965 Earnings per share 1.34 4.79 6.135 8.41 7.675
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