E22-5 (Accounting Change) Presented below are income statements prepared on a LIFO and FIFO basis for Kenseth Company, which started operations on January 1, 2013. The company presently uses the LIFO method of pricing its inventory and has decided to switch to the FIFO method in 2014. The FIFO income statement is computed in accordance with the requirements of GAAP. Kenseths 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			3000	3000		3000	3000
cost of good sold			1130	1000		1100	940
operation expenses			1000	1000		1000	1000
incomebefore profit sharing			870	1000		900	1060
porfit sharing expense			87	100		96	100
net income			783	900		804	960

Instructions Answer the following questions. (a) If comparative income statements are prepared, what net income should Kenseth report in 2016 and 2017? (b) Explain why, under the FIFO basis, Kenseth reports $100 in 2016 and $96 in 2017 for its profit-sharing expense. (c) Assume that Kenseth has a beginning balance of retained earnings at January 1, 2017, of $8,000 using the LIFO method. The company declared and paid dividends of $500 in 2014. Prepare the retained earnings statement for 2017, assuming that Kenseth has switched to the FIFO method.