Accounting Change Presented are income statements prepared on a LIFO and FIFO basis for Carlton Company, which started operations on January 1, 2009. The company presently uses the LIFO method of pricing its inventory and has decided to switch to the FIFO method in 2010. The FIFO income statement is computed in accordance with GAAP requirements. Carlton's profit-sharing agreement with its employees indicates that the company will pay employees 5% of income before profit sharing. Income taxes are ignored. Answer the following questions.

(a) If comparative income statements are prepared, what net income should Carlton report in 2009 and 2010?

(b) Explain why, under the FIFO basis, Carlton reports $50 in 2009 and $48 in 2010 for its profit sharing expense.

(c) Assume that Carlton has a beginning balance of retained earnings at January 1, 2010, of $8,000 using the LIFO method. The company declared and paid dividends of $2,500 in 2010. Prepare the retained earnings statement for 2010, assuming that Carlton has switched to the FIFO method.

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LIFO Basis 2009 FIFO Basis 2010 2010 $3,000 1,130 2009 $3,000 1,000 Sales $3,000 1,100 $3,000 940 1,000 Cost of goods sold Operating expenses Income betore profit sharing Profit sharing expense Net income 1,000 870 1,000 1,000 1,060 53 $1,007 900 45 44 50 $ 950 $ 826 $ 855