(Change in Principle—LIFO to Average Cost; Income Statements—Periodic) The management of Kreiter Instrument Company had concluded, with the concurrence of its independent auditors, that results of operations would be more fairly presented if Kreiter changed its method of pricing inventory from last-in, first-out (LIFO) to average cost in 2007. 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.

Instructions Prepare comparative statements for the 5 years, assuming that Kreiter changed its method of inventory pricing to average cost. Indicate the effects on net income and earnings per share for the years involved.
Kreiter Instruments started business in 2002. (All amounts except EPS are rounded up to the nearest dollar.)

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KREITER INSTRUMENT COMPANY STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED MAY 31 2003 2004 2005 2006 2007 Sales-net Cost of goods sold Beginning inventory $13,964 $15,506 $16,673 $18,221 $18,898 1,000 1,100 1,000 1,115 1,237 Purchases 13,000 13,900 15,000 15,900 17,100 Ending inventory (1,100) (1,000) (1,115) (1,237) (1,369) Total 12,900 14,000 14,885 15,778 16,968 Gross profit 1,064 1,506 1,788 2,443 1,930 Administrative expenses 700 763 832 907 989 Income before taxes 364 743 956 1,536 941 Income taxes (50%) 182 372 478 768 471 Net income Retained earnings-beginning 182 371 478 768 470 1,206 1,388 1,759 2,237 3,005 Retained earnings-ending $ 1,388 $ 1,759 $ 2,237 $ 3,005 $ 3,475 Earnings per share $1.82 $3.71 $4.78 $7.68 $4.70 SCHEDULE OF INVENTORY BALANCES USING AVERAGE COST METHOD FOR THE YEARS ENDED MAY 31 2002 2003 2004 2005 2006 2007 $950 $1,124 $1,091 $1,270 $1,480 $1,699