Exercise 22-5 Presented below are income statements prepared on a LIFO and FIFO

Question

Exercise 22-5
Presented below are income statements prepared on a LIFO and FIFO basis for Bonita Company, which started operations on January 1, 2016. The company presently uses the LIFO method of pricing its inventory and has decided to switch to the FIFO method in 2017. The FIFO income statement is computed in accordance with the requirements of GAAP. Bonita’s profit-sharing agreement with its employees indicates that the company will pay employees 10% of income before profit-sharing. Income taxes are ignored.
LIFO Basis FIFO Basis
2017 2016 2017 2016
Sales $3,070 $3,070 $3,070 $3,070
Cost of goods sold 1,180 950 1,160 910
Operating expenses 960 960 960 960
Income before profit-sharing 930 1,160 950 1,200
Profit-sharing expense 93 116 99 116
Net income $837 $1,044 $851 $1,084

Answer the following questions.





If comparative income statements are prepared, what net income should Bonita report in 2016 and 2017? (Round answers to 0 decimal places, e.g. 125.)
2017 2016
Net income $
$







Assume that Bonita has a beginning balance of retained earnings at January 1, 2017, of $1,044 using the LIFO method. The company declared and paid dividends of $500 in 2017. Prepare the retained earnings statement for 2017, assuming that Bonita has switched to the FIFO method. (Round answers to 0 decimal places, e.g. 125.)
BONITA COMPANY
Retained Earnings Statement
$




:


:

$

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Exercise 22-5 resented below are income statements prepared on a LIFO and FIFO basis for Bonita Company ich started operations on January 1, 2016, The company presently uses the LIFO method of ing its inventory and has decided to switch to the FIFO method in 2017. The FIFO incone ment is computed in accordance with the requirements af GAAP. Bonita's profit-sharing eement with its employees indicates that the company will pay employees 10% af income before profit-sharing, Income taxes are ignored FIFO Basis 20 17 2016 2017 2016 Sales Cost of goods sold Operating expenses Income befare profit-sharing Profit-sharing expense Net inoome $3,070 $3,070 $3,070 $3,070 1,180 901,160 910 960 930 1,160 9501,200 116 $837 $1,044 $851 $1,084 960 960 116 Answer the following questions If comparative income statements are prepared, what net income should Bonita report in 2016 and 20177 (Round answers to 0 decimal places, eg. 125.) 2017 2016 Net income Assume that Bonita has a beginning balance of retained earnings at January 1, 2017, of 1,044 using the LIFO method. The company declared and paid dividends of $500 in 2017 Prepare the retained earnings statement for 2017, assuming that Bonita has switched to the FIFo method. (Round answers to 0 decimal places, e.g. 125.) BONITA COMPANY Click if you would like to Show Work for this question:

Explanation / Answer

Bonita COMPANY Income Statement For the Year Ended 2017 2016 Sales 3070 3070 Cost of goods sold 1160 910 Operating Expenses 960 960 Income Before profit sharing 950 1200 Profit sharing expenses 99 116 Net Income 851 1084 Retained Earnings Statement Retained Earning, January 1 (reported) 1044 Cumulative effect of Change to FIFO (1084-1044) 40 Retained Earning, January 1 (adjusted) 1084 Add: Net Income 851 Deduct: Dividends 500 Retained Earnings, December 31 1435

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