Exercise 22-5 (Part Level Submission)

Presented below are income statements prepared on a LIFO and FIFO basis for Blossom Company, which started operations on January 1, 2016. The company presently uses the LIFO method of pricing its inventory and has decided to switch to the FIFO method in 2017. The FIFO income statement is computed in accordance with the requirements of GAAP. Blossoms 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		$3,010		$3,010		$3,010		$3,010
Cost of goods sold		1,150		980		1,060		950
Operating expenses		980		980		980		980
Income before profit-sharing		880		1,050		970		1,080
Profit-sharing expense		88		105		100		105
Net income		$792		$945		$870		$975

Answer the following questions.

(a)

If comparative income statements are prepared, what net income should Blossom report in 2016 and 2017? (Round answers to 0 decimal places, e.g. 125.)

		2017		2016
Net income		$870		$975

(c)

Assume that Blossom has a beginning balance of retained earnings at January 1, 2017, of $945 using the LIFO method. The company declared and paid dividends of $490 in 2017. Prepare the retained earnings statement for 2017, assuming that Blossom has switched to the FIFO method.

BLOSSOM COMPANY Retained Earnings Statement $ > $