(Accounting Change) Gordon Company started operations on January 1, 2002, and has used the FIFO method of inventory valuation since its inception. In 2008, it decides to switch to the average cost method. You are provided with the following information.

Instructions

(a) What is the beginning retained earnings balance at January 1, 2004, if Gordon prepares comparative financial statements starting in 2004?

(b) What is the beginning retained earnings balance at January 1, 2007, if Gordon prepares comparative financial statements starting in 2007?

(c) What is the beginning retained earnings balance at January 1, 2008, if Gordon prepares single- period financial statements for 2008?

(d) What is the net income reported by Gordon in the 2007 income statement if it prepares comparative financial statements starting with 2005?

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Under FIFO 2002 $100,000 2003 70,000 Net Income Under Average Cost $ 90,000 65,000 Retained Earnings (Ending balance) Under FIFO $100,000 160,000 2004 90,000 80,000 235,000 2005 120,000 130,000 340,000 2006 300,000 290,000 590,000 2007 305,000 310,000 780,000