Retained Earnings (Ending Balance) Net Income Under FIFO Under Average Cost Unde

Question

Retained Earnings (Ending Balance) Net Income Under FIFO Under Average Cost Under FIFO 2006 2007 2008 2009 2010 2011 $100,000 70,000 90,000 120,000 300,000 305,000 $92,000 65,000 80,000 130,000 293,000 310,000 $100,000 160,000 235,000 340,000 590,000 780,000 (a) What is the beginning retained earnings balance at January 1, 2008, if Linden prepares comparative financial statements starting in 2008? (b) What is the beginning retained earnings balance at January 1, 2011, if Gordon prepares comparative financial statements starting in 2011? (c) What is the beginning retained earnings balance at January 1, 2012, if Gordon prepares single period financial statements for 2012? (d) What is the net income reported by Gordon in the 2011 income statement if it prepares comparative financial statements starting with 2009? 2009 2010 2011 Net Income

Explanation / Answer

(a) Beginning retained earnings balance at January 1, 2008, if Linden prepares comparative financial statements starting in 2008: ($92000 + 65000 - 10000) = $147,000

(b) Beginning retained earnings balance at January 1, 2011, if Linden prepares comparative financial statements starting in 2011: Total Net Income as per Average Cost - Income distributed upto 2010

= $660,000 - $90,000 = $570,000

(c) Beginning retained earnings balance at January 1, 2012, if Linden prepares single period financial statements starting in 2012 = It remains same as FIFO method retained earnings = $780,000

(d) Year 2009 2010 2011

Net Income $115,000 $243,000 $195,000

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