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Problem 22-1 The management of Bonita Instrument Company had concluded, with the concurrence of its independent auditors, that results of operations would be more fairly presented if Bonita changed its method of pricing inventory from last-in, first- out (LIFO) to average-cost in 2017. 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. BONITA INSTRUMENT COMPANY STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED MAY 31 2013 2014 2015 2016 2017 $14,000 $15,390 $16,560 $18,290 $18,900 1,000 1,010 Sales-net Cost of goods sold Beginning inventory Purchases Ending inventory Total Gross profit Administrative expenses Income before taxes Income taxes (50%) 12,880 (1,090) 12,790 1,210 700 1,090 13,790 (1,010) 13,870 1,520 760 14,850 (1,130) 14,730 1,830 830 1,130 15,810 (1,240) 15,700 2,590 900 1,690 845 1,240 17,165 (1,380) 17,025 1,875 980 510 760 895 1,000 500 380 448 Net income 380 447 255 255 1,210 $1,465 $2.55 500 1,845 845 2,345 Retained earnings-beginning Retained earnings-ending Earnings per share 1,465 $1,845 3,190 $3,637 $2,345 $3,190 $3.80 $5.00 $8.45 $4.47 SCHEDULE OF INVENTORY BALANCES USING AVERAGE-COST METHOD FOR THE YEARS ENDED MAY 31 2013 2014 2015 2016 2017 $1,010 $1,110 $1,110 $1,280 $1,500 $1,730 2012 Prepare comparative statements for the 5 years, assuming that Bonita changed its method of inventory pricing to average-cost. Indicate the effects on net income and earnings per share for the years involved. Bonita Instruments started business in 2012. (Enter amounts that decrease cost of goods sold using either a negative sign preceding the number e.g. -15,000 or parentheses e.g. (15,000). Round all amounts except EPS to the nearest whole dollar, e.g. 5,275. Round Earnings Per Share to 2 decimal places, e.g. 1.62. Round up the tax effects to the next whole dollar.) BONITA INSTRUMENT COMPANY Statement of Income and Retained Earnings For the Years Ended May 31 2013 2014 2015 2016 2017 Sales-net $ 14,000 15,390 16,560 18,900 $ 18,290 Cost of goods sold Beginning inventory 1,010 1,110 1,110 1,280 1,500 Purchases 12,880 13,790 14,850 15,810 17,165 Ending inventory -1,110 -1,110 -1,280 -1,500 -1,730 Total 12,780 13,790 14,680 15,590 16,935 Gross profit 1,220 1,600 1,880 2,700 1,965 Administrative expenses -700 -760 -830 -900 -980 Income before taxes 520 840 1,050 1,800 985 Income taxes -265 -390 -510 -855 -458 Net income 255 450 540 945 527 Retained earnings-beginning: As originally reported 1,210 1,465 1,845 2,345 3,190 Adjustment 0 70 110 210 290 As restated 1,210 1,535 1,955 2,555 3,480 Retained earnings-ending 1,465 1,985 2,495 3,500 4,007 Earnings per share
